<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
------------------------------
PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): October 30, 1997
DATA DIMENSIONS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 0-4748 06-0852458
(State or other jurisdiction of (Commission File No.) (I.R.S. Employer
incorporation or organization) Identification No.)
One Bellevue Center, Suite 2100, 411-108th Avenue NE, Bellevue, Washington 98004
(Address of principal executive offices)
Registrant's telephone number, including area code: 425-688-1000
================================================================================
1
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Item 2. Acquisition of Assets 3
Item 7. Financial Statements and Exhibits
a) Financial statements of Pyramid Information Services, Inc 4
b) Pro forma financial information 14
c) Exhibits - The following exhibit is filed as a part of this
report
2.1 Agreement and Plan of Reorganization by and among Data
Dimensions, Inc., DP Acquisition Corporation, Eugene M.
Stabile, and Pyramid Information Services, Inc. dated
October 30, 1997.
23.1 Consent of independent certified public accountants.
</TABLE>
2
<PAGE> 3
DATA DIMENSIONS, INC.
FORM 8-K
Item 2. Acquisition of Assets
On October 30, 1997, Data Dimensions, Inc. (the "Company") entered into
a definitive agreement with Pyramid Information Services, Inc. ("Pyramid") and
it's shareholder, pursuant to which the Company will acquire all of the
outstanding common stock of Pyramid in exchange for Company common stock having
a value of approximately $18 million, such value determined based upon the
average closing market price of Company common stock for a period preceding the
close of the business combination. As a result of the transaction, Pyramid, a
Los Angeles, California based company which provides computer processing and
management services to its customers, will become a wholly-owned subsidiary of
the Company. It is expected that the acquisition will close in early November
1997.
Item 7. Financial statements and exhibits
(a) Financial statements of business acquired
Included herewith are Pyramid audited financial statements as of
December 31, 1995 and 1996 and for each of the years then ended and the
unaudited financial statements as of June 30, 1997 and for each of the six
month periods ended June 30, 1996 and 1997.
(b) Pro forma financial information
Included herewith is a pro forma condensed consolidated balance sheet as
of June 30, 1997, presented on the basis as if the Company's acquisition of
Pyramid had occurred on June 30, 1997, and condensed consolidated statements
of operations for each of the years ended December 31, 1995 and 1996 and
each of the six month periods ended June 30, 1996 and 1997, presenting
results of operations as the combined results of the Company and Pyramid.
This business combination qualifies as a "pooling-of-interests" for
accounting and financial reporting purposes. The pooling-of-interest method
of accounting is intended to present as a single interest two or more common
shareholder interests which were previously independent. Consequently, the
historical financial statements for periods prior to the consummation of the
combination will be restated as though the companies had been combined for
all periods presented.
(c) Exhibits - The following exhibit is filed as a part of this report:
2.1 Agreement and Plan of Reorganization by and among
Data Dimensions, Inc., DP Acquisition Corporation,
Eugene M. Stabile, and Pyramid Information
Services, Inc. dated October 30, 1997.
23.1 Consent of independent certified public
accountants.
3
<PAGE> 4
PYRAMID INFORMATION SERVICES, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
AND
(UNAUDITED) SIX MONTHS ENDED JUNE 30, 1996 AND 1997
4
<PAGE> 5
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholder
Pyramid Information Services, Inc.
We have audited the accompanying balance sheets of Pyramid Information Services,
Inc. as of December 31, 1995 and 1996, and the related statements of operations,
stockholder's equity and cash flows for each of the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Pyramid Information Services,
Inc. as of December 31, 1995 and 1996, and the results of its operations and
cash flows for each of the years then ended, in conformity with generally
accepted accounting principles.
BDO Seidman, LLP
September 12, 1997
Los Angeles, California
5
<PAGE> 6
PYRAMID INFORMATION SERVICES, INC.
BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------
1995 1996 1997
------ ------ ------
(Unaudited)
<S> <C> <C> <C>
Current assets
Cash and cash equivalents $ 406 $ 1 $ 669
Accounts receivable, less allowance of $49 1,179 1,792 1,644
Prepaid and other current assets 112 339 296
------ ------ ------
Total current assets 1,697 2,132 2,609
Computers and equipment, net (Note 2) 28 285 902
Other assets 57 66 83
------ ------ ------
$1,782 $2,483 $3,594
====== ====== ======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable $ 65 $ 222 $ 347
Accrued compensation 132 152 320
Advance billings - 122 31
Deferred state income taxes 120 180 135
Other accrued liabilities 135 154 232
Current portion of capital lease obligations - - 178
------ ------ ------
Total current liabilities 452 830 1,243
------ ------ ------
Capital lease obligations, net of current portion
(Note 4) - - 480
------ ------ ------
Commitments (Note 4)
Stockholder's equity
Common stock and additional paid in capital;
100 shares issued and outstanding 10 10 10
Retained earnings 1,320 1,643 1,861
------ ------ ------
Total stockholder's equity 1,330 1,653 1,871
------ ------ ------
$1,782 $2,483 $3,594
====== ====== ======
</TABLE>
See accompanying notes to financial statements.
6
<PAGE> 7
PYRAMID INFORMATION SERVICES, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------ ------------------
1995 1996 1996 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
(Unaudited) (Unaudited)
Revenue $4,833 $6,001 $2,787 $3,733
Direct costs 3,009 4,092 1,964 2,627
------ ------ ------ ------
Gross margin 1,824 1,909 823 1,106
General, administrative and selling 1,153 1,138 480 734
expenses
------ ------ ------ ------
Income before state income tax 671 771 343 372
Provision for state income tax 70 85 35 40
------ ------ ------ ------
Net income $ 601 $ 686 $ 308 $ 332
====== ====== ====== ======
</TABLE>
See accompanying notes to financial statements.
7
<PAGE> 8
PYRAMID INFORMATION SERVICES, INC.
STATEMENT OF STOCKHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK AND
ADDITIONAL PAID IN CAPITAL
-------------------------- RETAINED
SHARES $ EARNINGS TOTAL
--- --- ------- -------
<S> <C> <C> <C> <C>
Balance, January 1, 1995 100 $10 $ 719 $ 729
Net income - - 601 601
--- --- ------- -------
Balance, December 31, 1995 100 10 1,320 1,330
Distribution to shareholder - - (363) (363)
Net income - - 686 686
--- --- ------- -------
Balance, December 31, 1996 100 10 1,643 1,653
Distribution to - - (114) (114)
shareholder(Unaudited)
Net income (Unaudited) - - 332 332
--- --- ------- -------
Balance, June 30, 1997 100 $10 $ 1,861 $ 1,871
=== === ======= =======
</TABLE>
See accompanying notes to financial statements.
8
<PAGE> 9
PYRAMID INFORMATION SERVICES, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
----------------- -----------------
1995 1996 1996 1997
----- ----- ----- -----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net income $ 601 $ 686 $ 308 $ 332
Adjustments to reconcile net income to net
cash provided (used) by operating
activities:
Depreciation 26 161 60 195
Deferred state income taxes 35 60 (10) (45)
Changes in operating assets and
liabilities:
Decrease (increase) in accounts (329) (613) 152 148
receivable
Decrease (increase) in prepaid and
other current assets (11) (227) (119) 43
Increase (decrease) in accounts (4) 157 408 125
payable
Increase in accrued compensation 54 20 53 168
Increase (decrease) in advance - 122 6 (91)
billings
Other 82 10 15 62
----- ----- ----- -----
Net cash provided by operating activities 454 376 873 937
----- ----- ----- -----
Cash flows from investing activities
Purchases of equipment and furniture (40) (418) (373) (155)
----- ----- ----- -----
Net cash used by investing activities (40) (418) (373) (155)
----- ----- ----- -----
Cash flows from financing activities
Repayment of note payable (102) - - -
Distributions to shareholder - (363) (208) (114)
----- ----- ----- -----
Net cash used by financing activities (102) (363) (208) (114)
----- ----- ----- -----
Net increase (decrease) in cash and cash 312 (405) 292 668
equivalents
Cash and cash equivalents, beginning of
period 94 406 406 1
----- ----- ----- -----
Cash and cash equivalents, end of period $ 406 $ 1 $ 698 $ 669
===== ===== ===== =====
</TABLE>
See accompanying notes to financial statements.
9
<PAGE> 10
PYRAMID INFORMATION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business - Pyramid Information Services, Inc. (the
"Company") provides mainframe outsourcing services, including data processing,
operations and systems support, network and production control, to clients
located throughout the United States, Canada and Australia. Additionally, the
Company also provides Web design and hosting services domestically and
internationally, as well as consulting and programming services for development
of Internet and Intranet applications. The Company is incorporated in the state
of California.
Significant customers - Revenues from major customers exceeding 10% of
total revenue included two customers accounting for 58% and 20% of 1995 revenue,
and three customers accounting for 55%, 17% and 14% of 1996 revenue.
Concentration of Credit Risk - Financial instruments that potentially
subject the Company to concentration of credit risk include primarily cash and
cash equivalents, and accounts receivable. The Company places its cash deposits
and certain short-term investments in bank deposits and money market funds with
high credit quality financial institutions; at times deposits exceed
federally-insured limits. Accounts receivable consist of account balances due
from several relatively large companies dispersed primarily across the United
States, with no significant geographic concentration, and industry
concentrations in direct mail marketing and entertainment. The Company performs
ongoing credit evaluations of its customers' financial condition and generally
requires no collateral from its customers.
Accounting Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those estimates.
Fair value disclosures - Recorded amounts of cash and cash equivalents,
receivables, prepaid and other current assets, accounts payable and other
amounts included in current liabilities meeting the definition of financial
instruments approximate fair value.
Cash and Cash Equivalents - Cash and cash equivalents represent funds on
deposit with banks and money market funds. The carrying value of these
instruments approximates fair value.
Computers and Equipment - Computers and equipment are stated at cost and
are depreciated utilizing straight-line methods over estimated useful lives of 3
to 5 years. Repairs and maintenance expenditures which do not extend productive
lives are expensed as incurred.
Revenue Recognition - Revenues are recognized as services are provided.
Advance billings are provided for by certain contracts and are recognized as
revenue when the related services are performed.
10
<PAGE> 11
PYRAMID INFORMATION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Income Taxes - The Company, with the consent of its shareholder, elected
under the Internal Revenue Code to be taxed as an S corporation for federal
income tax purposes, and as a result in lieu of the Company paying corporate
income tax, the shareholder reports the Company's taxable income on the
shareholder's personal income tax return. The Company elected to be taxed as a C
corporation for California State income tax purposes and accordingly, income
taxes are provided for the state tax effect of the Company's operating results
reported in the financial statements. The provision consists of state tax
currently due and deferred taxes related to differences in financial statement
and tax bases of assets and liabilities. Deferred tax assets and liabilities
represent estimated future tax return consequences of such differences, which
will either be taxable or deductible when the assets and liabilities are
recovered or settled.
Interim Financial Statements - The interim financial data at June 30, 1997
and for the six months ended June 30, 1996 and 1997 is unaudited; however, in
the opinion of Company management, the interim data includes all adjustments,
consisting only of normal recurring adjustments necessary for a fair statement
of results for the interim periods. The interim results of operations for the
six months ended June 30, 1997 are not necessarily indicative of results
expected for the entire year.
Effect of Recently Issued Accounting Standards - Recently issued accounting
standards having relevant applicability to the Company consist primarily of
Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive
Income", which relates to additional reporting and disclosure requirements
effective for financial statement periods beginning after December 15, 1997. It
is not expected that the adoption of this accounting pronouncement will have any
effect on the Company's operating results or financial condition.
NOTE 2 - COMPUTERS AND EQUIPMENT
Computers and equipment consist of computers, component parts and
peripheral equipment. Total cost and accumulated depreciation and amortization
are comprised of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
----------------- -------
1995 1996 1997
----- ----- -------
<S> <C> <C> <C>
(Unaudited)
Computers and equipment $ 211 $ 558 $ 1,364
Accumulated depreciation and amortization (183) (273) (462)
----- ----- -------
Computers and equipment, net $ 28 $ 285 $ 902
===== ===== =======
</TABLE>
Computers and equipment at June 30, 1997 (unaudited) includes equipment
under capital lease of approximately $768,000 and related accumulated
amortization approximates $77,000.
11
<PAGE> 12
PYRAMID INFORMATION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 - INCOME TAXES
The provision for state income tax consists of the following for the years
ended December 31 (in thousands):
<TABLE>
<CAPTION>
1995 1996
--- ---
<S> <C> <C>
Current $35 $25
Deferred 35 60
--- ---
Provision for State Income Tax $70 $85
=== ===
</TABLE>
Deferred state income taxes relate primarily to cash basis reporting for
tax purposes. Deferred state income taxes are comprised of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1996
----- -----
<S> <C> <C>
Deferred tax liabilities $ 150 $ 240
Deferred tax assets (30) (60)
----- -----
Net deferred state income taxes $ 120 $ 180
===== =====
</TABLE>
State income taxes paid approximated $56,000 and $69,000 in 1995 and 1996,
respectively.
NOTE 4 - LEASES
The Company leases its facilities and certain of its equipment under
operating leases, some of which contain renewal options. Future annual minimum
rental commitments under operating leases having noncancelable terms in excess
of one year at December 31, 1996, are as follows (in thousands):
<TABLE>
<S> <C>
1997 $ 767
1998 312
1999 115
------
$1,194
======
</TABLE>
Rent expense approximated $279,000 and $455,000 in 1995 and 1996,
respectively.
12
<PAGE> 13
PYRAMID INFORMATION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 - LEASES (CONTINUED)
In April 1997, the Company entered into an agreement for lease of certain
computer equipment, which is accounted for as a capital lease. The Company's
shareholder has personally guaranteed the capital lease obligation. Future
annual minimum obligations at June 30, 1997 (unaudited) are as follows (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
1997 $ 134
1998 201
1999 201
2000 201
2001 67
------
Total minimum payments 804
Amount representing interest (146)
------
658
Current portion (178)
------
Non-current portion $ 480
======
</TABLE>
NOTE 5 - EMPLOYEE BENEFIT PLAN
Effective January 1, 1997, the Company has a 401(k) employee benefit plan
for those employees who meet eligibility requirements. Eligible employees may
contribute up to 15% of their compensation. The Company's contribution to the
plan is discretionary as determined by the Board of Directors.
NOTE 6 - NOTE PAYABLE
During the year ended December 31, 1995, the Company repaid in full a 9%,
two-year promissory note due December 1995, which was personally guaranteed by
the Company's shareholder.
NOTE 7 - SUBSEQUENT EVENTS
The Company and its shareholder have entered into a letter of intent for
the acquisition of the Company by Data Dimensions, Inc., a public company
primarily engaged in computer consulting services.
13
<PAGE> 14
DATA DIMENSIONS, INC
Pro Forma Financial Information
(Unaudited)
The accompanying pro forma financial information gives effect to the business
combination of Data Dimensions, Inc. (the "Company") and Pyramid Information
Services, Inc. (Pyramid"). This business combination qualifies as a
"pooling-of-interests" for accounting and financial reporting purposes. The
pooling-of-interests method of accounting is intended to present as a single
interest two or more common shareholder interests which were previously
independent. Consequently, the historical financial statements for periods prior
to the consummation of the combination will be restated as though the companies
had been combined for all periods presented.
The pro forma financial statements included herein should be read in conjunction
with the Company's audited, annual financial statements included in the
Company's December 31, 1996 Annual Report on Form 10-KSB and it's unaudited
interim financial statements included in the Company's June 30, 1997 Quarterly
Report on Form 10-QSB, and the Pyramid financial statements, which are included
in this Form 8-K.
The accompanying pro forma condensed consolidated balance sheet presents the
financial position of the combined businesses as of June 30, 1997, giving effect
to the business combination utilizing the pooling-of-interest method of
accounting after giving effect to the pro forma adjustments described in the
accompanying notes.
The accompanying pro forma condensed consolidated statements of operations for
each of the years ended December 31, 1995 and 1996 and each of the six month
periods ended June 30, 1996 and 1997 give effect to the business combination
utilizing the pooling-of-interest method of accounting after giving effect to
the pro forma adjustments described in the accompanying notes. These unaudited
pro forma condensed consolidated statements of operations may not be indicative
of results to be expected in the future.
14
<PAGE> 15
DATA DIMENSIONS, INC.
Pro Forma Condensed Consolidated Balance Sheet
June 30, 1997
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Data
Dimensions Pyramid Adjustments Pro Forma
-------- ------- -------- --------
<S> <C> <C> <C>
Current Assets
Cash and cash equivalents $ 3,767 $ 669 $ 4,436
Investment securities available for sale 3,185 3,185
Accounts receivable, net 8,218 1,644 9,862
Notes and other receivables 911 911
Prepaid and other current assets 1,338 296 1,634
-------- ------- -------- --------
Total current assets 17,419 2,609 20,028
Equipment and furniture, net 1,334 902 2,236
Investment in product development 2,267 2,267
Other assets 352 83 435
-------- ------- -------- --------
Total Assets $ 21,372 $ 3,594 $ 0 $ 24,966
======== ======= ======== ========
Current liabilities
Accounts payable $ 690 $ 347 $ 1,037
Accrued compensation and related 984 318 1,304
Accrued commissions 379 379
Other accrued liabilities 472 263 $ 400(a) 1,135
Current portion of capital lease obligations 178 178
Deferred income taxes 135 150(a,b) 285
Dividends payable 1,000(c) 1,000
-------- ------- -------- --------
Total current liabilities 2,525 1,241 1,550 5,318
-------- ------- -------- --------
Capital lease obligations, net of
current portion 480 480
-------- ------- -------- --------
Stockholders' equity
Common stock and paid in capital 21,314 10 250(a) 21,574
Treasury stock (2,955) (2,955)
Retained earnings 488 1,863 (800)(a,b) 549
(1,000)(c)
-------- ------- -------- --------
Total stockholders' equity 18,847 1,873 (1,550) 19,168
-------- ------- -------- --------
Total liabilities and stockholders' equity $ 21,372 $ 3,594 $ 0 $ 24,966
======== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of the pro forma condensed
consolidated balance sheet.
15
<PAGE> 16
DATA DIMENSIONS, INC.
Pro Forma Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------------------------------------------
1995 1996
----------------------------------- -----------------------------------
DDI Pyramid Pro forma DDI Pyramid Proforma
----------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 6,232 $ 4,833 $11,065 $14,835 $ 6,001 $ 20,836
Direct Costs 3,485 3,009 6,494 8,191 4,092 12,283
----------------------------------- -----------------------------------
Gross Margin 2,747 1,824 4,571 6,644 1,909 8,553
General, administrative
and selling expenses 2,236 1,153 3,389 6,259 1,138 7,397
----------------------------------- -----------------------------------
Income from operations 511 671 1,182 385 771 1,156
Other income (207) (207) 492 492
----------------------------------- -----------------------------------
Income before taxes 304 671 975 877 771 1,648
Income taxes 450 (70) 380 70 (85) (15)
----------------------------------- -----------------------------------
Net Income $ 754 $ 601 $ 1,355 $ 947 $ 686 $ 1,633
=================================== ===================================
</TABLE>
Pro forma net income and common equivalent share (a)
<TABLE>
<S> <C> <C>
Number of shares 8,096 11,234
======= ========
Net income per share $ 0.17 $ 0.15
======= ========
Combined net income before pro
forma adjustments $ 1,355 $ 1,633
Pro forma adjustment for contractual
increase to be made in officer salary (b) (30) (89)
------- --------
Pro forma net income after contractual
increase in officer salary 1,325 1,544
Pro forma adjustment for federal income
taxes on Pyramid adjusted pre-tax income (c) (194) (203)
------- --------
Pro forma net income $ 1,131 $ 1,341
======= ========
Average Shares Outstanding 8,096 11,234
======= ========
Pro forma net income per share $ 0.14 $ 0.12
======= ========
</TABLE>
The accompanying notes are an integral part of the pro forma
condensed consolidated statements of operations.
16
<PAGE> 17
DATA DIMENSIONS, INC.
Pro Forma Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30
-------------------------------------------------------------------------------
1996 1997
----------------------------------- -------------------------------------
DDI Pyramid Pro forma DDI Pyramid Proforma
----------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 5,589 $ 2,787 $ 8,376 $ 15,789 $ 3,733 $ 19,522
Direct Costs 3,175 1,964 5,139 7,824 2,627 10,451
----------------------------------- -------------------------------------
Gross Margin 2,414 823 3,237 7,965 1,106 9,071
General, administrative
and selling expenses 2,273 480 2,753 6,437 734 7,171
----------------------------------- -------------------------------------
Income from operation 141 343 484 1,528 372 1,902
Other income 89 89 267 267
----------------------------------- -------------------------------------
Income before taxes 230 343 573 1,795 372 2,167
Income taxes (92) (35) (127) (700) (40) (740)
----------------------------------- -------------------------------------
Net Income $ 138 $ 308 $ 446 $ 1,095 $ 332 $ 1,427
=================================== =====================================
</TABLE>
Pro forma net income and common equivalent share (a)
<TABLE>
<S> <C> <C>
Number of shares 12,251 12,444
======== ========
Net income per share $ 0.04 $ 0.11
======== ========
Combined net income before pro
forma adjustments $ 446 $ 1,427
Pro forma adjustment for contractual
increase to be made in officer salary (b) (45) (45)
-------- --------
Pro forma net income after contractual
increase in officer salary 401 1,382
Pro forma adjustment for federal income
taxes on Pyramid adjusted pre-tax income (c) (90) (98)
-------- --------
Pro forma net income $ 311 $ 1,284
======== ========
Average Shares Outstanding 12,251 12,444
======== ========
Pro forma net income per share $ 0.03 $ 0.10
======== ========
</TABLE>
The accompanying notes are an integral part of the pro forma condensed
consolidated statements of operations.
17
<PAGE> 18
DATA DIMENSIONS, INC.
Notes to Pro Forma Condensed Consolidated Balance Sheet
June 30, 1997
(a) All fees and expenses related to the business combination and to the
consolidation of the combining companies will be expensed as required
under the pooling-of-interest accounting method. These expenses have
not been reflected in the unaudited pro forma condensed consolidated
statements of operations, but will be reflected in the statement of
operations of the Company in the period the business combination is
consummated. Such fees and expenses are presently estimated to
approximate $650,000 ($400,000 after tax), most of which are direct
transaction costs. Included in such costs are commission fees to be
paid to an agent in the amount of $250,000, which can be paid either
in cash or Company common stock, at the Company's option. This pro
forma balance sheet is presented on the basis that such fees are paid
in Company common stock.
(b) To record estimated deferred federal income taxes relating to
differences at June 30, 1997 between income tax basis and financial
reporting basis of Pyramid assets and liabilities, which primarily
relate to cash basis accounting for tax purposes. Prior to the
business combination Pyramid was a subchapter S corporation for
federal income tax purposes and accordingly, it's taxable income was
not taxed to the corporation, but rather directly to it's
shareholder. Upon the date that the Company becomes the shareholder
of Pyramid, Pyramid will be included in the Company's consolidated
income tax group. In accordance with pooling-of-interest accounting
the Company will record deferred income taxes as of the transaction
date representing estimated future tax liabilities relating to the
excess of future net taxable income for income tax purposes.
(c) To record estimated accrued dividends to be declared in an amount
consistent with Pyramid's normal pattern of distributing to it's
shareholder substantially all of it's taxable income for the current
tax period.
18
<PAGE> 19
DATA DIMENSIONS, INC.
Notes to
Pro Forma Condensed Consolidated Statements of Operation
(a) The calculation of unaudited pro forma net income per common and
common equivalent share for each period presented reflects the
issuance of approximately 545,000 shares of Company common stock in
exchange for all of the outstanding shares of Pyramid common stock.
The number of shares was determined by dividing the $18 million
agreed upon exchange value by $33 per share. The actual number of
shares to be issued will be determined utilizing the average closing
market price of Company common stock for a period beginning August
20, 1997 and ending on and including the date that is two (2) trading
days preceding the close of the business combination.
(b) To record the pro forma effect of the difference between compensation
actually paid to Pyramid's officer/shareholder for each period
presented and the increased contractual agreed upon annual salary to
be paid after the business combination.
(c) To record the pro forma effect of a provision for federal income
taxes on Pyramid net income as if it had been a taxable entity
itself, rather that the subchapter S pass-through entity as it was
for each period presented. These pro forma adjustments do not give
effect to reductions which might have occured had the companies been
combined and utilized net operating loss carry forwards of the
Company which might have been available during the periods presented.
These pro forma statements of operations do not give effect to
deferred federal income taxes relating to Pyramid, which will be
recorded as a tax provision in the period the business combination is
consummated (see footnote (b) of the Notes to Pro Forma Condensed
Consolidated Balance Sheet).
19
<PAGE> 20
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on behalf by the
undersigned hereunto duly authorized.
November 7, 1997 DATA DIMENSIONS, INC.
By /s/ Larry W. Martin
-----------------------------------------------
Larry W. Martin, President, Chief Executive
Officer and Chairman of the Board of Directors.
20
<PAGE> 1
EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
DATA DIMENSIONS, INC.,
DP ACQUISITION CORPORATION,
EUGENE M. STABILE,
AND
PYRAMID INFORMATION SERVICES, INC.
DATED AS OF
OCTOBER 30, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. THE MERGER................................................................................2
1.1. THE MERGER............................................................................2
1.2. EFFECTIVE TIME........................................................................2
1.3. EFFECT OF THE MERGER..................................................................2
1.4. CERTIFICATE OF INCORPORATION; BYLAWS..................................................2
1.5. DIRECTORS AND OFFICERS................................................................2
1.6. CONVERSION OF COMMON STOCK............................................................2
1.7. SURRENDER OF CERTIFICATES.............................................................3
1.8. TAX AND ACCOUNTING CONSEQUENCES.......................................................4
1.9. TAKING OF NECESSARY ACTION; FURTHER ACTION............................................4
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND SELLING SHAREHOLDER.....................4
2.1. ORGANIZATION OF THE COMPANY...........................................................4
2.2. COMPANY CAPITAL STRUCTURE.............................................................4
2.3. SUBSIDIARIES..........................................................................5
2.4. AUTHORITY.............................................................................5
2.5. COMPANY FINANCIAL STATEMENTS..........................................................5
2.6. NO UNDISCLOSED LIABILITIES............................................................5
2.7. NO CHANGES............................................................................6
2.8. TAX AND OTHER RETURNS AND REPORTS.....................................................7
2.9. RESTRICTIONS ON BUSINESS ACTIVITIES...................................................8
2.10. TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES...............................9
2.11. INTELLECTUAL PROPERTY................................................................9
2.12. AGREEMENTS, CONTRACTS AND COMMITMENTS...............................................10
2.13. INTERESTED PARTY TRANSACTIONS.......................................................11
2.14. COMPLIANCE WITH LAWS................................................................12
2.15. LITIGATION..........................................................................12
2.16. INSURANCE...........................................................................12
2.17. MINUTE BOOKS........................................................................12
2.18. ENVIRONMENTAL MATTERS...............................................................12
2.19. BROKERS' AND FINDERS' FEES; THIRD PARTY EXPENSES....................................13
2.20. EMPLOYEE MATTERS AND BENEFIT PLANS..................................................13
2.21. ACCOUNTS RECEIVABLE.................................................................16
2.22. CUSTOMERS...........................................................................16
2.23. IMPROPER PAYMENTS...................................................................16
2.24. PERMITS.............................................................................16
2.25. DISCLOSURE..........................................................................16
3. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB..................................17
3.1. ORGANIZATION, STANDING AND POWER.....................................................17
3.2. AUTHORITY............................................................................17
3.3. CAPITAL STRUCTURE....................................................................18
3.4. SEC DOCUMENTS........................................................................18
3.5. NO MATERIAL ADVERSE CHANGE...........................................................18
3.6. LITIGATION...........................................................................19
3.7. BROKERS' AND FINDERS' FEES...........................................................19
3.8. DISCLOSURE...........................................................................19
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
4. CONDUCT PRIOR TO THE EFFECTIVE TIME......................................................19
4.1. CONDUCT OF BUSINESS OF THE COMPANY...................................................19
4.2. NO SOLICITATION......................................................................21
4.3. STRATEGIC AGREEMENTS.................................................................21
5. ADDITIONAL AGREEMENTS....................................................................22
5.1. INVESTMENT INTENT....................................................................22
5.2. ACCESS TO INFORMATION................................................................22
5.3. CONFIDENTIALITY......................................................................22
5.4. EXPENSES.............................................................................22
5.5. PUBLIC DISCLOSURE....................................................................22
5.6. CONSENTS.............................................................................23
5.7. FIRPTA COMPLIANCE....................................................................23
5.8. REASONABLE EFFORTS...................................................................23
5.9. NOTIFICATION OF CERTAIN MATTERS......................................................23
5.10. POOLING ACCOUNTING..................................................................23
5.11. ADDITIONAL DOCUMENTS AND FURTHER ASSURANCES.........................................23
6. CONDITIONS TO THE MERGER.................................................................24
6.1. CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER.........................24
6.2. ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY AND SELLING SHAREHOLDER..........24
6.3. ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PARENT AND MERGER SUB....................25
7. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNITY; AND ESCROW........................26
7.1. SURVIVAL AND INDEMNITY...............................................................26
7.2. ESCROW ARRANGEMENTS..................................................................28
8. TERMINATION, AMENDMENT AND WAIVER........................................................31
8.1. TERMINATION..........................................................................31
8.2. EFFECT OF TERMINATION................................................................32
8.3. AMENDMENT............................................................................33
8.4. EXTENSION; WAIVER....................................................................33
9. GENERAL PROVISIONS.......................................................................33
9.1. NOTICES..............................................................................33
9.2. INTERPRETATION.......................................................................34
9.3. COUNTERPARTS.........................................................................34
9.4. ENTIRE AGREEMENT; ASSIGNMENT.........................................................34
9.5. SEVERABILITY.........................................................................35
9.6. OTHER REMEDIES.......................................................................35
9.7. GOVERNING LAW........................................................................35
9.8. RULES OF CONSTRUCTION................................................................35
9.9. SPECIFIC PERFORMANCE.................................................................35
</TABLE>
<PAGE> 4
DEFINITIONS
<TABLE>
<S> <C>
Adjustment Amount..........................4
Affiliate.................................15
Aggregate Number...........................3
Agreement..................................1
Agreement of Merger........................2
Balance Sheet..............................7
Certificates...............................4
Claims....................................29
Closing....................................2
Closing Date...............................2
Code.......................................5
Company....................................1
Company Capital Stock......................2
Company Disclosure Schedule................5
Company Employee Plan.....................16
Company Financials.........................7
Company Intellectual Property Rights......11
Conflict...................................6
Contract..................................13
Disclosing Party..........................25
Disclosure schedule.......................19
DOL.......................................16
Economic interest in any entity...........14
Effective Date.............................1
Effective Time.............................2
Employee..................................16
Employee agreement........................16
Employee Benefit Plan.....................16
Employee pension benefits plan............16
End-User Licenses.........................11
Environmental Permits.....................15
Erisa.....................................15
Escrow Agent..............................31
Escrow Amount..............................3
Escrow Fund...............................31
Escrow Period.............................31
Excess parachute payment..................18
Expiration Date...........................29
GAAP.......................................7
Governmental Entity........................6
Hazardous Material........................15
Hazardous Material Activities.............15
IRS.......................................16
LABOR.....................................18
Liens......................................9
Losses....................................29
Material Adverse Effect....................5
Merger.....................................2
Merger Sub.................................1
Multiemployer plan........................16
New shares................................32
Officer's Certificate.....................32
Parent.....................................1
Parent Average Closing Price...............3
Parent Common Stock........................2
Parent Parties............................29
Parent SEC Reports........................21
Pension plan..............................16
Permitted Dividend........................22
Prohibited transaction....................17
Receiving Party...........................25
Returns....................................9
Selling Shareholder........................1
Surviving Corporation......................2
Tax........................................9
Taxes......................................9
Tax-exempt use property....................9
Third party expenses......................25
United States real property holding
corporation.............................10
</TABLE>
<PAGE> 5
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the agreement, schedules, and
exhibits are hereinafter referred to as this "AGREEMENT") is made and entered
into as of OCTOBER 30, 1997 (the "EFFECTIVE DATE") among Data Dimensions, Inc.,
a Delaware corporation ("PARENT"), DP Acquisition Corporation, a Washington
corporation and a wholly-owned subsidiary of Parent ("MERGER SUB"), Pyramid
Information Services, Inc., a California corporation (the "COMPANY"), and Eugene
M. Stabile, the sole shareholder of the Company ("SELLING SHAREHOLDER").
RECITALS
A. The Boards of Directors of each of the Company, Parent and Merger
Sub believe it is in the best interests of each company and their respective
stockholders that Parent acquire the Company through the statutory merger of
Merger Sub with and into the Company (the "MERGER") and, in furtherance thereof,
have approved the Merger.
B. Pursuant to the Merger, among other things, and subject to the
terms and conditions of this Agreement, all of the issued and outstanding shares
of voting capital stock of the Company ("COMPANY CAPITAL STOCK") and all
outstanding options, warrants and other rights to acquire or receive shares of
Company Capital Stock will be converted into Common Stock of Parent ("PARENT
COMMON STOCK").
C. A portion of the shares of Parent Common Stock issuable by Parent
in connection with the Merger will be placed in escrow by Parent, the release of
which amount will be contingent upon certain events and conditions, all as set
forth in Section 6 hereof.
D. The Company, Selling Shareholder, Parent and Merger Sub desire to
make certain representations and warranties and other agreements in connection
with the Merger.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
intending to be legally bound hereby the parties agree as follows:
1. THE MERGER
1.1. THE MERGER.
At the Effective Time (as defined in Section 1.2) and subject to and
upon the terms and conditions of this Agreement and applicable law, including
without limitation, the California General Corporation Law, Merger Sub will be
merged with and into the Company, the separate corporate existence of Merger Sub
will cease and the Company will continue as the surviving corporation and as a
wholly-owned subsidiary of Parent. The Company as the surviving corporation
after the Merger is hereinafter sometimes referred to as the "SURVIVING
CORPORATION."
1.2. EFFECTIVE TIME.
Unless this Agreement is earlier terminated pursuant to Section 7.1, the
closing of the Merger (the "CLOSING") will take place following satisfaction or
waiver of the conditions set forth in Section 0, at the offices of Parent in
Bellevue, Washington on November 4, 1997, unless another place or time is agreed
to by Parent and the Company. The date upon which the Closing actually occurs is
herein referred to as the "CLOSING DATE." Each certificate which
2
<PAGE> 6
before the Effective Time represented shares of Company Capital Stock shall
thereafter evidence ownership of the number of full shares of Parent Common
Stock Into which such shares of Company Capital Stock shall have been so
converted. As soon as practicable following the Closing, the parties hereto will
cause the Merger to be consummated by filing an Agreement of Merger hereto and
any required certificates substantially in the form of Exhibit 1.2 with the
Secretaries of State of the States of California and Washington (the "AGREEMENT
OF MERGER"), in accordance with the relevant provisions of applicable law (the
time of acceptance by the later of the acceptances of such filings being
referred to herein as the "EFFECTIVE TIME").
1.3. EFFECT OF THE MERGER.
At the Effective Time, the effect of the Merger will be as provided by
applicable law including the California General Corporation Law and the
Washington Business Corporations Act. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the property, rights,
privileges, powers and franchises of the Company and Merger Sub will vest in the
Surviving Corporation, and all debts, liabilities and duties of the Company and
Merger Sub will become the debts, liabilities and duties of the Surviving
Corporation.
1.4. CERTIFICATE OF INCORPORATION; BYLAWS.
1.4.1. Unless otherwise determined by Parent prior to the
Effective Time, at the Effective Time, the Certificate of
Incorporation of Company will be the Certificate of
Incorporation of the Surviving Corporation until
thereafter amended.
1.4.2. The Bylaws of Company, as in effect immediately prior to
the Effective Time, will be the Bylaws of the Surviving
Corporation until thereafter amended.
1.5. DIRECTORS AND OFFICERS.
From and after the Effective Time: (a) the director(s) of Merger Sub
immediately prior to the Effective Time will be the director(s) of the Surviving
Corporation, each to hold office in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation; and (b) the officers of
Merger Sub immediately prior to the Effective Time will be the officers of the
Surviving Corporation, each to hold office in accordance with the Bylaws of the
Surviving Corporation.
1.6. CONVERSION OF COMMON STOCK.
Each share of Company Capital Stock issued and outstanding immediately
before the Effective Time will, at the Effective Time, by virtue of the Merger
and without any action on the part of the holder thereof, be converted into that
number of shares of Parent Common Stock calculated by multiplying (i) the
Aggregate Number (as hereinafter defined) by (ii) the proportion that one share
of Company Capital Stock bears to the total number of all such shares of Company
Capital Stock outstanding immediately before the Effective Time. As soon as
practicable after the Effective Time, the Selling Shareholder will surrender all
certificates representing Company Capital Stock to Parent or a designated
exchange agent, together with such duly executed documentation as may be
required by Parent or the exchange agent to effect a transfer of such shares.
The total number of shares of Parent Common Stock (the "AGGREGATE
NUMBER") to be issued hereunder will be equal to: (a) Eighteen Million Dollars
($18,000,000) minus the Adjustment Amount (as defined in Section 1.6.1) (or such
number as adjusted pursuant to Section 1.6.3 below); divided by (b) the average
of the closing prices of Parent Common Stock as reported for consolidated
trading on the NASDAQ National Market System, as reported in THE WALL STREET
JOURNAL, beginning on and including August 20, 1997 and ending on and including
the date that is two (2) trading days prior to the Closing Date (the "PARENT
AVERAGE CLOSING PRICE"). Certificates representing ninety percent (90%) of such
shares will be issued as soon as practicable after Parent or its designated
exchange agent
3
<PAGE> 7
receives the documentation required to effect a transfer of the Company Capital
Stock. Ten percent (10%) of such shares will be considered the "ESCROW AMOUNT"
and subject to Section 6.2 below.
1.6.1. ADJUSTMENT AMOUNT.
The ADJUSTMENT AMOUNT will equal the out-of-pocket expenses payable by
the Company in connection with actions take pursuant to Exhibit 5.10.3.
1.6.2. CAPITAL STOCK OF MERGER SUB.
Each share of Common Stock of Merger Sub issued and outstanding
immediately prior to the Effective Time will by virtue of the Merger and without
any action on the part of the holder thereof, be converted into and exchanged
for one validly issued, fully paid and nonassessable share of Common Stock of
the Surviving Corporation. The Surviving Corporation will issue a stock
certificate evidencing ownership of any such shares of capital stock of the
Surviving Corporation upon surrender of the certificates which formerly
represented the Common Stock of Merger Sub.
1.6.3. ADJUSTMENTS.
The calculation described herein will be adjusted to reflect fully the
effect of any stock split, reverse split, stock dividend (including any dividend
or distribution of securities convertible into Parent Common Stock or Company
Capital Stock), reorganization, recapitalization or other like change with
respect to Parent Common Stock or Company Capital Stock occurring after the date
hereof and prior to the Effective Time.
1.7. SURRENDER OF CERTIFICATES.
1.7.1. PARENT TO PROVIDE COMMON STOCK.
Promptly after the Effective Time, Parent will make available for
exchange in accordance with this Section 1, certificates representing the
aggregate number of shares of Parent Common Stock issuable pursuant to Section
1.6 in exchange for certificates formerly representing outstanding shares of
Company Capital Stock; provided that, on behalf of Selling Shareholder, Parent
will deposit into an escrow account a number of shares of Parent Common Stock
equal to the Escrow Amount out of the aggregate number of shares of Parent
Common Stock otherwise issuable pursuant to Section 1.6.
1.7.2. EXCHANGE PROCEDURES.
Promptly after the Effective Time, the Selling Shareholder will cause to
be delivered to Parent a certificate or certificates (the "CERTIFICATES") which
immediately prior to the Effective Time represented outstanding shares of
Company Capital Stock which were converted into shares of Parent Common Stock
pursuant to Section 1.6. Upon surrender of a Certificate for cancellation to
Parent or such agent as may be appointed by Parent, Selling Shareholder will be
entitled to receive in exchange therefor a certificate representing the number
of whole shares of Parent Common Stock (less the number of shares of Parent
Common Stock to be deposited in the Escrow Fund pursuant to Section 6 hereof),
to which such holder is entitled pursuant to Section 1.6, and the Certificate so
surrendered will forthwith be canceled. As soon as practicable after the
Effective Time, and subject to and in accordance with the provisions of Section
6 hereof, Parent will cause to be distributed to the Escrow Agent (as defined in
Section 6) a certificate or certificates representing that number of shares of
Parent Common Stock equal to the Escrow Amount which will be registered in the
name of the Escrow Agent. Such shares will be beneficially owned by the Selling
Shareholder and will be available to compensate Parent as provided in Section 6.
Until so surrendered, each outstanding Certificate that, prior to the Effective
Time, represented shares of Company Capital Stock will be deemed from and after
the Effective Time, for all corporate purposes to evidence the ownership of the
number of full shares of Parent Common Stock into which such shares of Company
Capital Stock will have been so converted.
4
<PAGE> 8
1.8. TAX AND ACCOUNTING CONSEQUENCES
It is intended by the parties hereto that the Merger will (i) constitute
a tax-free reorganization within the meaning of Section 368(a)(1)(A) of the
Internal Revenue Code of 1986, as amended (the "CODE") and (ii) qualify for
accounting treatment as a pooling of interests.
1.9. TAKING OF NECESSARY ACTION; FURTHER ACTION
If, at any time after the Effective Time, any such further action is
necessary or desirable to carry out the purposes of this Agreement and to vest
the Surviving Corporation with full right, title and possession to all assets,
property, rights, privileges, powers and franchises of the Company and Merger
Sub, the officers and directors of the Company and Merger Sub are fully
authorized in the name of their respective corporations or otherwise to take,
and will take, all such lawful and necessary action.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND SELLING SHAREHOLDER
The Company and Selling Shareholder hereby represent and warrant,
jointly and severally, to Parent and Merger Sub, subject to such exceptions as
are disclosed in the disclosure schedule signed by and attached as Exhibit 2 to
this Agreement by the Company to Parent (the "COMPANY DISCLOSURE SCHEDULE") and
dated as of the date hereof, as follows:
2.1. ORGANIZATION OF THE COMPANY.
The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of California. The Company has the
corporate power to own its properties and to carry on its business as now being
conducted. The Company is duly qualified to do business and in good standing as
a foreign corporation in each jurisdiction in which the failure to be so
qualified would have a material adverse effect on the business, assets
(including intangible assets), financial condition or results of operations
(hereinafter referred to as a "MATERIAL ADVERSE EFFECT") of the Company. The
Company has delivered a true and correct copy of its Articles of Incorporation
and Bylaws, each as amended to date, to Parent.
2.2. COMPANY CAPITAL STRUCTURE.
2.2.1. The authorized capital stock of the Company consists of
1,000,000 shares of authorized capital stock, of which
100,000 shares are issued and outstanding. All outstanding
shares of the Company Capital Stock are held of record by
the Selling Shareholder. All outstanding shares of Company
Capital Stock are duly authorized, validly issued, fully
paid and non-assessable and not subject to preemptive
rights created by statute, the Certificate of
Incorporation or Bylaws of the Company or any agreement to
which the Company is a party or by which it is bound.
2.2.2. There are no options, warrants, calls, rights, commitments
or agreements of any character, written or oral, to which
the Company is a party or by which it is bound obligating
the Company to issue, deliver, sell, repurchase or redeem,
or cause to be issued, delivered, sold, repurchased or
redeemed, any shares of the capital stock of the Company.
There are no options, warrants, calls, rights, commitments
or agreements of any character, written or oral, to which
the Company is a party or by which it is bound obligating
the Company to grant, extend, accelerate the vesting of,
change the price of, otherwise amend or enter into any
such option, warrant, call, right, commitment or
agreement.
5
<PAGE> 9
2.3. SUBSIDIARIES.
The Company does not have and has never had any subsidiaries companies
and does not otherwise own and has never otherwise owned any shares of capital
stock or any equity interest in, or control, directly or indirectly, any other
corporation, partnership, association, joint venture or other business entity.
2.4. AUTHORITY.
The Company has all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company. This Agreement has been duly
executed and delivered by the Company and Selling Shareholder and constitutes
the valid and binding obligation of the Company and Selling Shareholder,
enforceable against each in accordance with its terms, except as enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
laws relating to or affecting the enforcement of creditors' rights generally or
by general equitable principles. The execution and delivery of this Agreement by
the Company does not, and, as of the Effective Time, the consummation of the
transactions contemplated hereby will not, conflict with, or result in any
violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of any benefit under (a "CONFLICT") (i) any provision of
the Articles of Incorporation or Bylaws of the Company or (ii) any mortgage,
indenture, lease, contract or other agreement or instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to the Company or its properties or assets. No consent,
waiver, approval, order or authorization of, or registration, declaration or
filing with, any court, administrative agency or commission or other federal,
state, county, local or foreign governmental authority, instrumentality, agency
or commission ("GOVERNMENTAL ENTITY") or any third party (so as not to trigger
any Conflict), is required by or with respect to the Company or Selling
Shareholder in connection with the execution and delivery of this Agreement or
the consummation of the transactions contemplated hereby, except for (i) the
filing of the Agreement of Merger and any required certificates with the
California and Washington Secretaries of State, (ii) such consents, waivers,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable federal and state securities laws, (iii) the
filing by the Selling Shareholder with the SEC of a Form 3 Initial Statement of
Beneficial Ownership; (iv) the filing by the Seller Shareholder with the SEC of
a Schedule 13D, if required, and (v) such other consents, waivers,
authorizations, filings, approvals and registrations which are set forth on the
Company Disclosure Schedule.
2.5. COMPANY FINANCIAL STATEMENTS.
Company Disclosure Schedule sets forth the Company's audited balance
sheet as of December 31, 1996 and the related audited statements of operations,
stockholders' equity and cash flows for the twelve-month period then ended and
the Company's unaudited balance sheet as of June 30, 1997 (the "BALANCE SHEET")
and the related unaudited statements of operations, stockholders' equity and
cash flows for the six-month period then ended (collectively, the "COMPANY
FINANCIALS"). The Company Financials are correct in all material respects and
were prepared in accordance with generally accepted accounting principles
("GAAP") applied on a basis consistent throughout the periods indicated. The
Company Financials present fairly the financial condition and operating results
of the Company as of the dates and during the periods indicated therein,
subject, in the case of the unaudited financial statements, to normal year-end
adjustments, which will not be material in amount or significance.
2.6. NO UNDISCLOSED LIABILITIES.
The Company does not have any liability, indebtedness, obligation,
expense, claim, deficiency, guaranty or endorsement of any type, whether
accrued, absolute, contingent, matured, unmatured or other (whether or not
required to be reflected in financial statements in accordance with GAAP), which
individually or in the aggregate, (i) has not
6
<PAGE> 10
been reflected in the Balance Sheet, or (ii) has not arisen in the ordinary
course of the Company's business since June 30, 1997, consistent with past
practices.
2.7. NO CHANGES.
Since June 30, 1997, there has not been, occurred or arisen any:
2.7.1. transaction by the Company except in the ordinary course
of business as conducted on that date and consistent with
past practices;
2.7.2. amendments or changes to the Certificate of Incorporation
or Bylaws of the Company;
2.7.3. capital expenditure or commitment by the Company of
$10,000 in any individual case or $20,000 in the
aggregate.
2.7.4. destruction of, damage to or loss of any material assets,
business or customer of the Company (whether or not
covered by insurance),
2.7.5. labor trouble or claim of wrongful discharge of which the
Company has received written notice or of which the
Company is aware or other unlawful labor practice or
action;
2.7.6. change in accounting methods or practices (including any
change in depreciation or amortization policies or rates)
by the Company;
2.7.7. revaluation by the Company of any of its assets;
2.7.8. declaration, setting aside or payment of a dividend or
other distribution with respect to the capital stock of
the Company in excess of 80% of pre-Effective Time 1997
taxable income, the total of such dividend not to exceed
$1,000,000, or any direct or indirect redemption, purchase
or other acquisition by the Company of any of its capital
stock;
2.7.9. increase in the salary or other compensation payable or to
become payable by the Company to any of its officers,
directors, employees or advisors, or the declaration,
payment or commitment or obligation of any kind for the
payment, by the Company, of a bonus or other additional
salary or compensation to any such person except as
otherwise contemplated by this Agreement;
2.7.10. sale, lease, license or other disposition of any of the
assets or properties of the Company, except in the
ordinary course of business as conducted on that date and
consistent with past practices;
2.7.11. amendment or termination of any material contract,
agreement or license to which the Company is a party or by
which it is bound;
2.7.12. except for advances to employees for travel and business
expenses in the ordinary course of business and consistent
with past practices, loan by the Company to any person or
entity, incurring by the Company of any indebtedness,
guaranteeing by the Company of any indebtedness (other
than trade debt in the ordinary course of business and
consistent with past practices), issuance or sale of any
debt securities of the Company or guaranteeing of any debt
securities of others;
7
<PAGE> 11
2.7.13. waiver or release of any right or claim of the Company in
excess of $10,000, including any write-off or other
compromise of any account receivable of the Company;
2.7.14. commencement or notice or, to the Company's knowledge,
threat of commencement of any lawsuit or proceeding
against or investigation of the Company or its affairs;
2.7.15. notice of any claim of ownership by a third party of the
Company's Intellectual Property (as defined in Section
2.11 below) or of infringement by the Company of any third
party's Intellectual Property rights;
2.7.16. issuance or sale by the Company of any of its shares of
capital stock, or securities exchangeable, convertible or
exercisable therefor, or of any other of its securities;
2.7.17. change in pricing or royalties set or charged by the
Company to its customers or licensees or in pricing or
royalties set or charged by persons who have licensed
Intellectual Property to the Company other than such
changes in the ordinary course of business based upon
changes in costs or volume which are consistent with past
practices;
2.7.18. event or condition of any character that has or reasonably
would be expected to have a Material Adverse Effect on the
Company; or
2.7.19. agreement by the Company or any officer or employees
thereof to do any of the things described in the preceding
Section 2.7.1 through Section 2.7.18 other than
negotiations with Parent and its representatives regarding
the transactions contemplated by this Agreement.
2.8. TAX AND OTHER RETURNS AND REPORTS.
2.8.1. DEFINITION OF TAXES.
For the purposes of this Agreement, "TAX" or, collectively, "TAXES,"
means any and all federal, state, local and foreign taxes, assessments and other
governmental charges, duties, impositions and liabilities, including taxes based
upon or measured by gross receipts, income, profits, sales, use and occupation,
and value added, ad valorem, transfer, franchise, withholding, payroll,
recapture, employment, excise and property taxes, together with all interest,
penalties and additions imposed with respect to such amounts and any obligations
under any agreements or arrangements with any other person with respect to such
amounts and including any liability for taxes of a predecessor entity.
2.8.2. TAX RETURNS AND AUDITS.
2.8.2.1. The Company as of the Effective Time will have
prepared and timely filed (or made timely request
for extension) all required federal, state, local
and foreign returns, estimates, information
statements and reports ("RETURNS") relating to
any and all Taxes or income concerning or
attributable to the Company or its operations
and, to the Company's knowledge, such Returns
have been completed in accordance with applicable
law.
2.8.2.2. The Company as of the Effective Time: (A) will
have paid or accrued all Taxes it is required to
pay or accrue and (B) will have withheld with
respect to its employees all federal and state
income taxes, FICA, FUTA and other Taxes required
to be withheld.
2.8.2.3. The Company has not been delinquent in the
Payment of any Tax nor is there any Tax
8
<PAGE> 12
deficiency outstanding, proposed or assessed
against the Company, nor has the Company executed
any waiver of any statute of limitations on or
extending the period for the assessment or
collection of any Tax.
2.8.2.4. No audit or other examination of any Return of
the Company is presently in progress, nor has the
Company been notified of any request for such an
audit or other examination.
2.8.2.5. The Company does not have any liabilities for
unpaid federal, state, local and foreign Taxes
which have not been accrued or reserved against
in accordance with GAAP on the Balance Sheet,
whether asserted or unasserted, contingent or
otherwise.
2.8.2.6. The Company has provided to Parent copies of all
federal and state income and all state sales and
use Tax Returns for all periods since January 1,
1991.
2.8.2.7. There are (and as of immediately following the
Closing there will be) no liens, pledges,
charges, claims, security interests or other
encumbrances of any sort ("LIENS") on the assets
of the Company relating to or attributable to
Taxes, other than Liens for Taxes not yet due and
payable.
2.8.2.8. None of the Company's assets are treated as
"tax-exempt use property" within the meaning of
Section 168(h) of the Code.
2.8.2.9. As of the Effective Time, there will not be any
contract, agreement, plan or arrangement,
including but not limited to the provisions of
this Agreement, covering any employee or former
employee of the Company that, individually or
collectively, could give rise to the payment of
any amount that would not be deductible pursuant
to Sections 280G or 162 of the Code.
2.8.2.10. The Company has not filed any consent agreement
under Section 341(f) of the Code or agreed to
have Section 341(f)(2) of the Code apply to any
disposition of a subsection (f) asset (as defined
in Section 341(f)(4) of the Code) owned by the
Company.
2.8.2.11. The Company is not a party to a tax sharing or
allocation agreement nor does the Company owe any
amount under any such agreement.
2.8.2.12. The Company is not, and has not been at any
time, a "United States real property holding
corporation" within the meaning of Section
897(c)(2) of the Code.
2.8.2.13. The Company is and will be until the Effective
Time, an "S Corporation" within the meaning of
Section 1361(a)(1) of the Code.
2.9. RESTRICTIONS ON BUSINESS ACTIVITIES.
There is no agreement (noncompete or otherwise), judgment, injunction,
order or decree to which the Company is a party or otherwise binding upon the
Company which has or reasonably would be expected to have the effect of
prohibiting or impairing any business practice of the Company, any acquisition
of property (tangible or intangible) by the Company or the conduct of business
by the Company. Without limiting the foregoing, the Company has not entered into
any agreement under which the company is restricted from selling, licensing or
otherwise
9
<PAGE> 13
distributing any of its services or products to any class of customers, in any
geographic area, during any period of time or in any segment of the market.
2.10. TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES.
2.10.1. The Company Disclosure Schedule sets forth a list of all
real property currently leased by the Company, the name of
the lessor and the date of the lease and each amendment
thereto. All such current leases are in full force and
effect, are valid and effective in accordance with their
respective terms, and there is not, under any of such
leases, any existing default or event of default (or event
which with notice or lapse of time, or both, would
constitute a default) by the Company or of which the
Company has knowledge by any other party thereto. No lease
or other obligation of the Company contains any obligation
to purchase any real property.
2.10.2. The Company has good and valid title to, or, in the case
of leased properties and assets, valid leasehold interests
in, all of its tangible properties and assets, real,
personal and mixed, used or held for use in its business,
free and clear of any Liens (as defined in Section
2.8.2.7), except as reflected in the Company Financials or
the Company Disclosure Schedule and except for liens for
taxes not yet due and payable and such imperfections of
title and encumbrances, if any, which are not material in
character, amount or extent, and which do not materially
detract from the value, or materially interfere with the
present use, of the property subject thereto or affected
thereby.
2.11. INTELLECTUAL PROPERTY.
2.11.1. The Company owns, or is licensed or otherwise possesses
legally enforceable rights to use, all patents,
trademarks, trade names, service marks, copyrights, and
any applications therefor, maskworks, net lists,
schematics, technology, know-how, computer software
programs or applications (in both source code and object
code form), and tangible or intangible proprietary
information or material that are used in the business of
the Company as currently conducted (the "COMPANY
INTELLECTUAL PROPERTY RIGHTS").
2.11.2. Section 2.11.2 of the Company Disclosure Schedule sets
forth a complete list of all patents, registered and
material unregistered trademarks, registered copyrights,
trade names and service marks, and any applications
therefor, included in the Company Intellectual Property
Rights, and specifies, where applicable, the jurisdictions
in which each such Company Intellectual Property Right has
been issued or registered or in which an application for
such issuance and registration has been filed, including
the respective registration or application numbers and the
names of all registered owners. Section 2.11.2 of the
Company Disclosure Schedule also sets forth a complete
list of all licenses, sublicenses and other agreements to
which the Company is a party and pursuant to which the
Company or any other person is authorized by the Company
to use any Company Intellectual Property Right, excluding
object code end-user licenses granted to end-users in the
ordinary course of business that permit use of software
products without a right to modify, distribute or
sublicense the same ("END-USER LICENSES") or trade secrets
of the Company, and includes the identity of all parties
thereto. The execution and delivery of this Agreement by
the Company, and the consummation of the transactions
contemplated hereby, will neither cause the Company to be
in violation or default under any such license, sublicense
or agreement, nor entitle any other party to any such
license, sublicense or agreement to terminate or modify
such license, sublicense or agreement. The Company is the
sole and exclusive owner or licensee of, with all right,
title and interest in and to (free and clear of any liens
or encumbrances), the Company Intellectual Property
Rights, and has sole and exclusive rights (and is not
contractually obligated to pay
10
<PAGE> 14
any compensation to any third party in respect thereof) to
the use thereof or the material covered thereby in
connection with the services or products in respect of
which the Company Intellectual Property Rights are being
used.
2.11.3. No claims with respect to the Company Intellectual
Property Rights have been asserted against the Company or
are, to the Company's knowledge, threatened by any person,
nor is the Company aware of any bona fide claims or any
valid grounds for any bona fide claims (i) to the effect
that the manufacture, sale, licensing or use of any of the
products or services of the Company infringes on any
copyright, patent, trade mark, service mark, trade secret
or other proprietary right, (ii) against the use by the
Company of any trademarks, service marks, trade names,
trade secrets, copyrights, maskworks, patents, technology,
know-how or computer software programs and applications
used in the Company's business as currently conducted, or
(iii) challenging the ownership by the Company, validity
or effectiveness of any of the Company Intellectual
Property Rights. All registered trademarks, service marks
and copyrights held by the Company are valid and
subsisting. The business of the Company as currently
conducted or as proposed to be conducted by the Company
has not and does not infringe on any proprietary right of
any third party. To the Company's knowledge, there is no
material unauthorized use, infringement or
misappropriation of any of the Company Intellectual
Property Rights by any third party, including any
employee, consultant, or former employee or consultant of
the Company. No Company Intellectual Property Right or
product or service of the Company or any of its
subsidiaries is subject to any outstanding decree, order,
judgment, or stipulation restricting in any manner the
licensing thereof by the Company. Each employee of and
consultant to the Company has executed a proprietary
information and confidentiality agreement substantially in
the form included as an exhibit to the Company Disclosure
Schedule.
2.12. AGREEMENTS, CONTRACTS AND COMMITMENTS.
2.12.1. The Company does not have, is not a party to nor is it
bound by:
2.12.1.1. Any collective bargaining agreements,
2.12.1.2. Any agreements or arrangements that contain
any severance pay, or any agreements or
arrangements that contain any post-employment
liabilities or obligations,
2.12.1.3. Any bonus, deferred compensation, pension,
profit sharing or retirement plans, or any
other employee benefit plans or arrangements,
2.12.1.4. Any employment or consulting agreement with
an employee or individual consultant or
salesperson or consulting or sales agreement,
under which a firm or other organization
provides services to the Company,
2.12.1.5. Any agreement or plan, including, without
limitation, any stock option plan, stock
appreciation rights plan or stock purchase
plan, any of the benefits of which will be
increased, or the vesting of benefits of
which will be accelerated, by the occurrence
of any of the transactions contemplated by
this Agreement or the value of any of the
benefits of which will be calculated on the
basis of any of the transactions contemplated
by this Agreement,
2.12.1.6. Any fidelity or surety bond or completion
bond,
11
<PAGE> 15
2.12.1.7. Any lease of personal property providing for
aggregate future payments in excess of
$10,000,
2.12.1.8. Any agreement of indemnification or guaranty,
2.12.1.9. Any agreement containing any covenant
limiting the freedom of the Company to engage
in any line of business or to compete with
any person,
2.12.1.10. Any agreement relating to capital
expenditures and involving future payments in
excess of $10,000,
2.12.1.11. Any agreement relating to the disposition or
acquisition of assets or any interest in any
business enterprise outside the ordinary
course of the Company's business,
2.12.1.12. Any mortgages, indentures, loans or credit
agreements, security agreements or other
agreements or instruments relating to the
borrowing of money or extension of credit,
including guaranties referred to in Section
2.12.1.8 hereof,
2.12.1.13. Any purchase order or contract for the
purchase of raw materials involving $10,000
or more,
2.12.1.14. Any construction contracts,
2.12.1.15. Any distribution, joint marketing or
development agreement,
2.12.1.16. Any agreement pursuant to which the Company
has granted or may grant in the future, to
any party a source-code license or option or
other right to use or acquire source-code, or
2.12.1.17. Any other agreement with aggregate future
payments of over $10,000 or more and which is
not cancelable without penalty within thirty
(30) days.
2.12.2. Except for such alleged breaches, violations and defaults,
and events that would constitute a breach, violation or
default with the lapse of time, giving of notice, or both,
as are all noted in the Company Disclosure Schedule, the
Company has not breached, in any material respect,
violated or defaulted under, or received notice that it
has breached, violated or defaulted under, any of the
terms or conditions of any agreement, contract or
commitment set forth on Section 2.11.2 or Section 2.12.1
of the Company Disclosure Schedule (any such agreement,
contract or commitment, a "CONTRACT"). Each Contract is in
full force and effect and is not subject to any default
thereunder of which the Company has knowledge by any party
obligated to the Company pursuant thereto.
2.13. INTERESTED PARTY TRANSACTIONS.
To the Company's knowledge, no officer, director or affiliate (as
defined under Regulation C under the Securities Act of 1933, as amended) of the
Company (nor any ancestor, sibling, descendant or spouse of any of such persons,
or any trust, partnership or corporation in which any of such persons has or has
had an economic interest), has or has had, directly or indirectly, (i) an
economic interest in any entity which furnished or sold, or furnishes or sells,
services or products that the Company furnishes or sells, or proposes to furnish
or sell, or (ii) an economic interest in any entity that purchases from or sells
or furnishes to, the Company, any goods or services or (iii) a beneficial
interest in any contract or agreement set forth in Section 2.11.2 or Section
2.12.1 of the Company Disclosure Schedule;
12
<PAGE> 16
provided, that (x) ownership of no more than five percent (5%) of the
outstanding voting stock of a publicly traded corporation and no more than ten
percent (10%) of the outstanding equity of any other entity will not be deemed
an "economic interest in any entity" for purposes of this Section 2.13 and (y)
this provision will only apply if the terms and conditions applicable to the
subject relationship are materially less favorable to the Company than the terms
and conditions that could be obtained in an arms-length relationship.
2.14. COMPLIANCE WITH LAWS.
The Company has complied in all material respects with, is not in
material violation of, and has not received any notices of violation with
respect to, any foreign, federal, state or local statute, law or regulation.
2.15. LITIGATION.
There is no action, suit or proceeding of any nature pending or, to the
Company's knowledge, threatened against the Company, its properties or any of
its officers or directors, in their respective capacities as such. To the
Company's knowledge, there is no investigation pending or threatened against the
Company, its properties or any of its officers or directors in their capacities
as agents of the Company by or before any governmental entity. To the Company's
knowledge, no Governmental Entity has at any time challenged or questioned the
legal right of the Company to manufacture, offer or sell any of its products or
services in the present manner or style thereof.
2.16. INSURANCE.
With respect to the insurance policies and fidelity bonds covering the
assets, business, equipment, properties, operations, employees, officers and
directors of the Company, there is no material claim by the Company pending
under any of such policies or bonds as to which coverage has been questioned,
denied or disputed by the underwriters of such policies or bonds. All premiums
due and payable under all such policies and bonds have been paid and the Company
is otherwise in material compliance with the terms of such policies and bonds.
The Company has no knowledge of any threatened termination of, or material
premium increase with respect to, any of such policies.
2.17. MINUTE BOOKS.
The minute books of the Company made available to counsel for Parent are
the only minute books of the Company and contain a reasonably accurate summary
of all meetings of directors (or committees thereof) and stockholders or actions
by written consent since the time of incorporation of the Company.
2.18. ENVIRONMENTAL MATTERS.
2.18.1. HAZARDOUS MATERIAL.
The Company has not: (i) operated any underground storage tanks at any
property that the Company has at any time owned, operated, occupied or leased,
or (ii) illegally released any material amount of any substance that has been
designated by any Governmental Entity or by applicable federal, state or local
law to be radioactive, toxic, hazardous or otherwise a danger to health or the
environment, including, without limitation, PCBs, asbestos, petroleum,
urea-formaldehyde and all substances listed as hazardous substances pursuant to
the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, or defined as a hazardous waste pursuant to the United States
Resource Conservation and Recovery Act of 1976, as amended, and the regulations
promulgated pursuant to said laws (a "HAZARDOUS MATERIAL"), but excluding office
and janitorial supplies properly and safely maintained. No Hazardous Materials
have been released, in amounts which could be reasonably expected to involve the
Company in any environmental litigation or impose upon Company any material
environmental liability, as a result of the deliberate actions of the Company,
or, to the Company's knowledge, as a result of any actions of any third party or
otherwise, in, on or under any property, including the land and the
improvements, groundwater and surface water
13
<PAGE> 17
thereof, that the Company has at any time owned, operated, occupied or leased.
To the knowledge of the Company no asbestos or asbestos containing materials are
present in or on the building at 6171 West Century Boulevard, Los Angeles,
California except as may be reflected in that report titled Preliminary Suspect
Friable Asbestos-Containing Materials Inspection 6171 West Century Boulevard,
Los Angeles, California Prepared for the Koll Management Company, January 4,
1994 by Wilbert P. Gaston, R.G., R.E.A., (the "Asbestos Report"). The Company
makes no representation or warranty regarding the truth or accuracy of the
Asbestos Report.
2.18.2. HAZARDOUS MATERIAL ACTIVITIES.
The Company has not transported, stored, used, manufactured, disposed
of, released or exposed its employees or others to Hazardous Materials in
violation of any law in effect on or before the Closing Date, nor has the
Company disposed of, transported, sold, or manufactured any product containing a
Hazardous Material (any or all of the foregoing being collectively referred to
as "HAZARDOUS MATERIAL ACTIVITIES") in violation of any rule, regulation, treaty
or statute promulgated by any Governmental Entity in effect prior to or as of
the date hereof to prohibit, regulate or control Hazardous Materials or any
Hazardous Material Activity.
2.18.3. PERMITS.
The Company currently holds all environmental approvals, permits,
licenses, clearances and consents (the "ENVIRONMENTAL PERMITS") necessary for
the conduct of the Company's Hazardous Material Activities.
2.18.4. ENVIRONMENTAL LIABILITIES.
No action, proceeding, revocation proceeding, amendment procedure, writ,
injunction or claim is pending, or to the Company's knowledge, threatened
concerning any Environmental Permit, Hazardous Material or any Hazardous
Material Activity of the Company. The Company has no knowledge of any fact or
circumstance which could be reasonably expected to involve the Company in any
environmental litigation or impose upon the Company any environmental liability.
2.19. BROKERS' AND FINDERS' FEES; THIRD PARTY EXPENSES.
The Company has not incurred, nor will it incur, directly or indirectly,
any liability for brokerage or finders' fees or commissions or any similar
charges in connection with this Agreement or any transaction contemplated
hereby. Section 2.19 of the Company Disclosure Schedule sets forth the Company's
current reasonable estimate of all Third Party Expenses (as defined in Section
5.4) expected to be incurred by the Company in connection with the negotiation
and effectuation of the terms and conditions of this Agreement and the
transactions contemplated hereby.
2.20. EMPLOYEE MATTERS AND BENEFIT PLANS.
2.20.1. DEFINITIONS.
With the exception of the definition of "Affiliate" set forth below
(such definition will only apply to this Section 2.20), for purposes of this
Agreement, the following terms will have the meanings set forth below:
"AFFILIATE" will mean any other person or entity under common control
with the Company within the meaning of Section 414(b)(c), (m) or (o) of the Code
and the regulations thereunder;
"ERISA" will mean the Employee Retirement Income Security Act of 1974,
as amended;
"COMPANY EMPLOYEE PLAN" will refer to any plan, program, policy,
practice, agreement or other arrangement providing for compensation, severance,
termination pay, performance awards, stock or stock-related
14
<PAGE> 18
awards, fringe benefits or other employee benefits or remuneration of any kind,
whether formal or informal, funded or unfunded (including without limitation,
each "employee benefit plan," within the meaning of Section 3(3) of ERISA which
is or has been maintained, contributed to, or required to be contributed to, by
the Company or any Affiliate for the benefit of any "Employee" as defined
below), and pursuant to which the Company or any Affiliate has or may have any
material liability contingent or otherwise;
"EMPLOYEE" will mean any current, former, or retired employee, officer,
or director of the Company or any Affiliate;
"EMPLOYEE AGREEMENT" will refer to each management, employment,
severance, consulting, relocation, repatriation, expatriation, visa, work permit
or similar agreement or contract between the Company or any Affiliate and any
Employee or consultant;
"IRS" will mean the Internal Revenue Service;
"MULTIEMPLOYER PLAN" will mean any "Pension Plan" (as defined below)
which is a "multiemployer plan," as defined in Section 3(37) of ERISA; and
"PENSION PLAN" will refer to each Company Employee Plan which is an
"employee pension benefit plan," within the meaning of Section 3(2) of ERISA.
2.20.2. SCHEDULE.
The Company Disclosure Schedule contains an accurate and complete list
of each Company Employee Plan and each Employee Agreement under each such
Company Employee Plan or Employee Agreement and sets forth the estimated 401(k)
contribution by Company for the year ending December 31, 1997 as well as any
liabilities which, with reasonable due diligence, are not discernible solely
from the Company Employee Plan and Employee Agreements. The Company does not
have any stated plan or commitment to establish any new Company Employee Plan or
Employee Agreement, to modify any Company Employee Plan or Employee Agreement
(except to the extent required by law or to conform any such Company Employee
Plan or Employee Agreement to the requirements of any applicable law, in each
case as previously disclosed to Parent in writing, or as required by this
Agreement), or to enter into any Company Employee Plan or Employee Agreement
except as contemplated by this Agreement.
2.20.3. DOCUMENTS.
The Company has provided to Parent (i) correct and complete copies of
all documents embodying or relating to each Company Employee Plan and each
Employee Agreement including all amendments thereto and written interpretations
thereof; (ii) the most recent annual actuarial valuations, if any, prepared for
each Company Employee Plan; (iii) the three most recent annual reports (Series
5500 and all schedules thereto), if any, required under ERISA or the Code in
connection with each Company Employee Plan or related trust; (iv) if the Company
Employee Plan is funded, the most recent annual and periodic accounting of
Company Employee Plan assets; (v) the most recent summary plan description
together with the most recent summary of material modifications, if any,
required under ERISA with respect to each Company Employee Plan; (vi) all IRS
determination letters and rulings relating to Company Employee Plans and copies
of all applications and correspondence to or from the IRS or the Department of
Labor ("DOL") with respect to any Company Employee Plan; (vii) all
communications material to any Employee or Employees relating to any Company
Employee Plan and any proposed Company Employee Plans, in each case, relating to
any amendments, terminations, establishments, increases or decreases in
benefits, acceleration of payments or vesting schedules or other events which
would result in any material liability to the Company; and (viii) any
registration statement and prospectus prepared in connection with each Company
Employee Plan.
15
<PAGE> 19
2.20.4. EMPLOYEE PLAN COMPLIANCE.
The Company has performed in all material respects all obligations
required to be performed by it under each Company Employee Plan and each Company
Employee Plan has been established and maintained in all material respects in
accordance with its terms and in compliance with all applicable laws, statutes,
orders, rules and regulations, including but not limited to ERISA or the Code;
(ii) no "prohibited transaction," within the meaning of Section 4975 of the Code
or Section 406 of ERISA, has occurred with respect to any Company Employee Plan;
(iii) there are no actions, suits or claims pending, or, to the knowledge of the
Company, threatened or anticipated (other than routine claims for benefits)
against any Company Employee Plan or against the assets of any Company Employee
Plan; (iv) each Company Employee Plan can be amended, terminated or otherwise
discontinued after the Effective Time in accordance with its terms, without
liability to the Company, Parent or any of its Affiliates (other than ordinary
administration expenses typically incurred in a termination event); (v) there
are no inquiries or proceedings pending or, to the knowledge of the Company or
any affiliates, threatened by the IRS or DOL with respect to any Company
Employee Plan, and (vi) neither the Company nor any Affiliate is subject to any
penalty or tax with respect to any Company Employee Plan under Section 402(i) of
ERISA or Section 4975 through 4980 of the Code.
2.20.5. PENSION PLANS.
The Company does not now, nor has it ever, maintained, established,
sponsored, participated in, or contributed to, any Pension Plan which is subject
to Part 3 of Subtitle B of Title I of ERISA, Title IV of ERISA or Section 412 of
the Code.
2.20.6. MULTIEMPLOYER PLANS.
At no time has the Company contributed to or been requested to
contribute to any Multiemployer Plan.
2.20.7. NO POST-EMPLOYMENT OBLIGATIONS.
No Company Employee Plan provides, or has any liability to provide, life
insurance, medical or other employee benefits to any Employee upon his or her
retirement or termination of employment for any reason, except as may be
required by statute, and the Company has never represented, promised or
contracted (whether in oral or written form) to any Employee (either
individually or to Employees as a group) that such Employees would be provided
with life insurance, medical or other employee welfare benefits upon their
retirement or termination of employment, except to the extent required by
statute.
2.20.8. EFFECT OF TRANSACTION.
2.20.8.1. The execution of this Agreement and the
consummation of the transactions contemplated
hereby will not (either alone or upon the
occurrence of any additional or subsequent
events) constitute an event under any Company
Employee Plan, Employee Agreement, trust or
loan that will or may result in any payment
(whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness,
vesting, distribution, increase in benefits or
obligation to fund benefits with respect to any
Employee.
2.20.8.2. No payment or benefit which will or may be made
by the Company or Parent or any of their
respective affiliates with respect to any
Employee will be characterized as an "excess
parachute payment," within the meaning of
Section 280G(b)(1) of the Code.
2.20.9. EMPLOYMENT MATTERS.
16
<PAGE> 20
The Company (i) is in compliance in all material respects with all
applicable foreign, federal, state and local laws, rules and regulations
respecting employment, employment practices, terms and conditions of employment
and wages and hours, in each case, with respect to Employees; (ii) has withheld
all amounts required by law or by agreement to be withheld from the wages,
salaries and other payments; (iii) is not liable for any arrears of wages or any
taxes or any penalty for failure to comply with any of the foregoing; and (iv)
is not liable for any payment to any trust or other fund or to any government or
administrative authority, with respect to unemployment compensation benefits,
social security or similar benefits or obligations (other than routine payments
to be made in the normal course of business and consistent with past practice).
2.20.10. LABOR.
No work stoppage or labor strike against the Company is pending or, to
the best knowledge of the Company, threatened. The Company is not involved in
or, to the knowledge of the Company, threatened with, any labor dispute,
grievance, or litigation relating to labor, safety or discrimination matters
involving any Employee, including, without limitation, charges of unfair labor
practices or discrimination complaints, which, if adversely determined, would,
individually or in the aggregate, result in liability to the Company. Neither
the Company nor any of its subsidiaries has engaged in any unfair labor
practices within the meaning of the National Labor Relations Act which would,
individually or in the aggregate, directly or indirectly result in a liability
to the Company. The Company is not presently, nor has it been in the past, a
party to, or bound by, any collective bargaining agreement or union contract
with respect to Employees and no collective bargaining agreement is being
negotiated by the Company.
2.21. ACCOUNTS RECEIVABLE.
The accounts receivable of the Company reflected in the Company
Financials or existing at the Effective Time, including, without limitation,
notes receivable, trade accounts receivable, and employee receivables, arise
from valid transactions in the ordinary course of business, are not subject to
adjustment or discount, and are collectible at the aggregate recorded amounts
thereof. The recorded allowance for doubtful accounts is adequate and calculated
consistent with past practice.
2.22. CUSTOMERS.
To the Company's best knowledge, the acquisition hereunder will not
adversely affect the Company's business relationship with any of its customers.
Copies of all correspondence or other documents relating to complaints received
by the Company since January 1, 1994, from any of its customers, whether or not
resolved, and any other pending customer complaints have heretofore been
furnished to Parent. The Company has no obligation to accept any returns from or
make any allowance to any customers by reason of alleged defective services or
products.
2.23. IMPROPER PAYMENTS.
The Company has not made, offered or agreed to offer anything of value
to any foreign government official, political party or candidate for government
office nor has it otherwise taken any action which would cause the Company to be
in violation of Sections 103b or 104 of the Foreign Corrupt Practices of 1977,
as amended. The Company has adequate financial controls to prevent improper or
unlawful payments, gifts or expenditures relative to political activity to
foreign or domestic government officials or others.
2.24. PERMITS.
The Company currently holds all permits, licenses, clearances and
consents necessary for the conduct of the Company's businesses as such
activities and businesses are currently being conducted.
2.25. DISCLOSURE.
17
<PAGE> 21
None of the representations or warranties made by the Company and
Selling Shareholder (as modified by the Company Disclosure Schedule), nor any
statement made in any Exhibit, Schedule or certificate furnished by the Company
or Selling Shareholder pursuant to this Agreement, contains or will contain at
the Effective Time any untrue statement of a material fact, or omits or will
omit to state any material fact necessary in order to make the statements
contained herein or therein, in the light of the circumstances under which made,
not misleading.
3. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to the Company and Selling
Shareholder, subject to such exceptions as are disclosed in the disclosure
schedule signed by and attached as Exhibit 3 to this Agreement by the Parent to
Company (the "PARENT DISCLOSURE SCHEDULE") and dated as of the date hereof, as
follows:
3.1. ORGANIZATION, STANDING AND POWER.
Each of Parent, each of its material subsidiaries, and Merger Sub is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation, has the corporate power to own, lease
and operate its property and to carry on its business as now being conducted and
is duly qualified to do business and in good standing as a foreign corporation
in each jurisdiction in which the failure to be so qualified would have a
Material Adverse Effect on Parent. Except as set forth in the Parent SEC Reports
(as defined below) and except for such interests as are not required to be
reported therein, Parent does not directly or indirectly own any equity or
similar interest in, or any interest convertible into or exchangeable or
exercisable for any interest in, any corporation, partnership, joint venture or
other business association or entity. Parent has delivered or made available a
true and correct copy of the Certificate of Incorporation and Bylaws or other
charter documents of Parent, each as amended to date, to counsel for the
Company.
3.2. AUTHORITY.
Parent and Merger Sub have all requisite corporate power and authority
to enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Parent and Merger Sub. This Agreement has been
duly executed and delivered by Parent and Merger Sub and constitutes the valid
and binding obligations of Parent and Merger Sub, enforceable in accordance with
its terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other laws relating to or affecting the
enforcement of creditors' rights generally or by general equitable principles.
The execution and delivery of this Agreement does not, and the consummation of
the transactions contemplated hereby will not, conflict with, or result in any
violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of a benefit under (i) any provision of the Certificate
of Incorporation or Bylaws of Parent or Merger Sub or (ii) any material
mortgage, indenture, lease, contract or other agreement or instrument, permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Parent or its properties or assets,
other than any such conflicts, violations, defaults, terminations, cancellations
or accelerations which would not have a Material Adverse Effect on Parent. No
consent, approval, order or authorization of, or registration, declaration or
filing with, any Governmental Entity or third party (so as not to trigger a
Conflict), is required by or with respect to Parent and Merger Sub in connection
with the execution and delivery of this Agreement by Parent and Merger Sub or
the consummation by Parent and Merger Sub of the transactions contemplated
hereby, except for (i) the filing of the Agreement of Merger and any required
certificates with the California and Washington Secretaries of State, (ii) the
filing of a Form 8-K with the SEC within 15 days after the Closing Date, (iii)
any filings as may be required under applicable state securities laws and the
laws of any foreign country, and (iv) such other consents, authorizations,
filings, approvals and registrations set forth on Section 3.2 of the Parent
Disclosure Schedule.
18
<PAGE> 22
3.3. CAPITAL STRUCTURE.
3.3.1. The authorized capital stock of Parent consists of
20,000,000 shares of Common Stock, of which 11,965,056
shares were issued and outstanding as of 6/30/97. The
authorized capital stock of Merger Sub consists of 100
shares of Common Stock, 100 shares of which, as of the
date hereof, are issued and outstanding and are held by
Parent. All such shares have been duly authorized, and all
such issued and outstanding shares have been validly
issued, are fully paid and nonassessable and are free of
any liens or encumbrances other than any liens or
encumbrances created by or imposed upon the holders
thereof. The Parent has reserved 500,000 shares of Common
Stock for issuance to employees and consultants pursuant
to its 1988 Incentive Stock Option Plan and 1988
Nonstatutory Stock Option Plan of which approximately
72,000 shares remain available for grant as of May 1997. A
1997 Stock Option Plan reserves 1,000,000 shares of Common
Stock for issuance to employees and consultants. There are
no other equity securities, options, warrants, calls,
rights, commitments or agreements of any character,
written or oral, to which Parent is a party or by which it
is bound obligating Parent to issue, deliver, sell,
repurchase or redeem, or cause to be issued, delivered,
sold, repurchased or redeemed, any shares of the capital
stock of Parent or obligating Parent to grant, extend or
enter into any such equity security, option, warrant,
call, right, commitment or agreement.
3.3.2. The shares of Parent Common Stock to be issued pursuant to
the Merger will be duly authorized, validly issued, fully
paid, non-assessable.
3.4. SEC DOCUMENTS.
Parent has timely filed all forms, reports and documents required to be
filed with the SEC since December 31, 1994 and has made available to the Company
and Selling Shareholder, in the form filed with the SEC, (i) its Annual Report
on Form 10-KSB for the fiscal year ended December 31, 1996, (ii) its Quarterly
Reports on Form 10-QSB for the periods ended March 31, and June 30, 1997, (iii)
all proxy statements relating to Parent's meetings of stockholders (whether
annual or special) held since December 31, 1996, (iv) all other reports or
registration statements filed by Parent with the SEC since December 31, 1996,
and (v) all amendments and supplements to all such reports and registration
statements filed by Parent with the SEC. All such required forms, reports and
documents (including those enumerated in clauses (i) through (v) of the
preceding sentence) are referred to herein as the "PARENT SEC REPORTS." As of
their respective dates, the Parent SEC Reports (i) were prepared in accordance
with the requirements of the Securities Act or the Exchange Act, as the case may
be, and the rules and regulations of the SEC thereunder applicable to such
Parent SEC Reports and (ii) did not at the time they were filed (or if amended
or superseded by a filing prior to the date of this Agreement, then on the date
of such filing) contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The audited consolidated financial statements and
unaudited condensed consolidated interim financial statements of Parent and its
consolidated subsidiaries included in such reports are correct in all material
respects, were prepared in accordance with GAAP applied on a basis consistent
throughout the periods indicated, and present fairly the consolidated financial
position of Parent and its consolidated subsidiaries as of the dates thereof and
the consolidated results of their operations and cash flows for the periods then
ended, subject in the case of the unaudited condensed consolidated financial
statements, to normal year-end adjustments, which will not be material in amount
or significance.
3.5. NO MATERIAL ADVERSE CHANGE.
Since the date of the balance sheet included in the Parent's most
recently filed report on Form 10-QSB, Parent has conducted its business in the
ordinary course and there has not occurred: (a) any material adverse change in
the financial condition, liabilities, assets or business of Parent; (b) any
amendment or change in the Certificate of
19
<PAGE> 23
Incorporation or Bylaws of Parent; (c) any damage to, destruction or loss of any
assets of the Parent, (whether or not covered by insurance) that materially and
adversely affects the financial condition or business of Parent; or (d) any
material change in its outstanding capital stock or the issuance of any material
options, warrants, calls or other rights to purchase any shares of the capital
stock of Parent.
3.6. LITIGATION.
There is no action, suit, proceeding, claim, arbitration or
investigation pending, or as to which Parent has received any notice of
assertion against Parent which in any manner challenges or seeks to prevent,
enjoin, alter or materially delay any of the transactions contemplated by this
Agreement. There is no action, suit or proceeding of any nature pending, or, to
Parent's knowledge, threatened against the Parent or any subsidiary of Parent,
any of their properties or any of their officers or directors, in their
respective capacities as such, which if adversely determined would have a
Material Adverse Effect on Parent.
3.7. BROKERS' AND FINDERS' FEES
Except as set forth on Section 3.7 of the Parent Disclosure Schedule,
Parent has not incurred, nor will it incur, directly or indirectly, liability
for brokerage or finder's fees or commissions or any similar charges in
connection with this Agreement or any transaction contemplated hereby.
3.8. DISCLOSURE.
None of the representations or warranties made by the Parent and Merger
Sub (as modified by the Parent Disclosure Schedule), nor any statement made in
any Exhibit, Schedule or certificate furnished by Parent or Merger Sub pursuant
to this Agreement, contains or will contain at the Effective Time any untrue
statement of a material fact, or omits or will omit to state any material fact
necessary in order to make the statements contained herein or therein, in the
light of the circumstances under which made, not misleading.
4. CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1. CONDUCT OF BUSINESS OF THE COMPANY.
During the period from the date of this Agreement and continuing until
the earlier of the termination of this Agreement or the Effective Time, the
Company agrees (except to the extent that Parent will otherwise consent in
writing) to carry on its business in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted, to pay its debts and
Taxes when due, to pay or perform other obligations when due, and, to the extent
consistent with such business, to use all reasonable efforts consistent with
past practice and policies to preserve intact its present business organization,
keep available the services of its present officers and key employees and
preserve their relationships with customers, suppliers, distributors, licensors,
licensees, and others having business dealings with it, all with the goal of
preserving unimpaired its goodwill and ongoing businesses at the Effective Time.
The Company will promptly notify Parent of any materially negative event related
to the Company or its business. Except as expressly contemplated by this
Agreement, neither the Company, nor the Selling Shareholder, as applicable to
the Company Capital Stock, will, without the prior written consent of Parent:
4.1.1. Enter into any commitment or transaction not in the
ordinary course of business.
4.1.2. Transfer to any person or entity any rights to the Company
intellectual Property Rights (other than pursuant to
End-User Licenses in the ordinary course of business);
20
<PAGE> 24
4.1.3. Enter into or amend any agreements pursuant to which any
other party is granted marketing, distribution or similar
rights of any type or scope with respect to any services
or products of the Company;
4.1.4. Amend or otherwise modify (or agree to do so), except in
the ordinary course of business, or violate the terms of,
any of the agreements set forth or described in the
Company Disclosure Schedule;
4.1.5. Commence any litigation;
4.1.6. Declare, set aside or pay any dividends on or make any
other distributions (whether in cash, stock or property)
in respect of any of its capital stock, or split, combine
or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect
of, in lieu of or in substitution for shares of capital
stock of the Company, or repurchase, redeem or otherwise
acquire, directly or indirectly, any shares of its capital
stock (or options, warrants or other rights exercisable
therefor) except that the Company may declare and accrue a
cash dividend or cash dividends payable to the record
holder(s) of the Company Capital Stock at any time prior
to the Effective Time in an aggregate amount not exceeding
the lesser of (i) 80% of the Company's pre-Effective Time
taxable income for the period January 1, 1997 to the
Effective Time and (ii) $1,000,000, any such accrued
dividends to be payable as follows: 37.5% on or before
November 15, 1997; 31.25% on or before April 10, 1998;
15.625% on or before June 10, 1997; and 15.625% on or
before September 30, 1998;
4.1.7. Issue, grant, deliver or sell or authorize or propose the
issuance, grant, delivery or sale of, or purchase or
propose the purchase of, any shares of its capital stock
or securities convertible into, or subscriptions, rights,
warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any
such shares or other convertible securities;
4.1.8. Cause or permit any amendments to its Articles of
Incorporation or Bylaws except for an amendment to its
Bylaws to increase the authorized number of directors to
three;
4.1.9. Acquire or agree to acquire by merging or consolidating
with, or by purchasing any assets or equity securities of,
or by any other manner, any business or any corporation,
partnership, association or other business organization or
division thereof, or otherwise acquire or agree to acquire
any assets in an amount in excess of $10,000 in the case
of a single transaction or in excess of $25,000 in the
aggregate in any 30-day period;
4.1.10. Sell, lease, license or otherwise dispose of any of its
properties or assets, except in the ordinary course of
business;
4.1.11. Incur any indebtedness for borrowed money or guarantee
any such indebtedness or issue or sell any debt securities
of the Company or guarantee any debt securities of others;
4.1.12. Grant any severance or termination pay (i) to any director
or officer or (ii) to any other employee except payments
made pursuant to standard written agreements outstanding
on the date hereof;
4.1.13. Adopt or amend any employee benefit plan, or enter into
any employment contract, extend employment offers, pay or
agree to pay any special bonus or special remuneration to
any director or employee, or increase the salaries or wage
rates of its employees, except as
21
<PAGE> 25
consistent with the ordinary course of the Company
consistent with past practice (provided that the price per
share of any equity participation in the Company will be
agreed in advance by Parent);
4.1.14. Revalue any of its assets, including without limitation
writing down the value of inventory or writing off notes
or accounts receivable other than in the ordinary course
of business;
4.1.15. Pay, discharge or satisfy, in an amount in excess of
$10,000 (in any one case) or $25,000 (in the aggregate),
any claim, liability or obligation absolute, accrued,
asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction in the
ordinary course or business of liabilities reflected or
reserved against in the Company Financials (or the notes
thereto) or that arose in the ordinary course of business
subsequent to June 30, 1997 or expenses consistent with
the provisions of this Agreement incurred in connection
with any transaction contemplated hereby;
4.1.16. Make or change any material election in respect of Taxes,
adopt or change any accounting method in respect of Taxes,
enter into any closing agreement, settle any claim or
assessment in respect of Taxes, or consent to any
extension or waiver of the limitation period applicable to
any claim or assessment in respect of Taxes; or
4.1.17. Take, or agree in writing or otherwise to take, any of the
action described in Section 4.1.1 through Section 4.1.16
above, or any other action that would prevent the Company
from performing or cause the Company not to perform its
covenants hereunder.
4.2. NO SOLICITATION.
Until the earlier of the Effective Time or the date of termination of
this Agreement pursuant to the provisions of Section 7.1 hereof, the Company and
Selling Shareholder will not (nor will the Company permit any of the Company's
officers, directors, agents, representatives or affiliates to) directly or
indirectly, take any of the following actions with any party other than Parent
and its designees: (a) solicit, conduct discussions with or engage in
negotiations with any person, relating to the possible acquisition of the
Company (whether by way of merger, purchase of capital stock, purchase of assets
or otherwise) or any material portion of its capital stock or assets, (b)
provide information with respect to it to any person, other than Parent,
relating to the possible acquisition of the Company (whether by way of merger,
purchase of capital stock, purchase of assets or otherwise) or any material
portion of its or their capital stock or assets, (c) enter into an agreement
with any person, other than Parent, providing for the acquisition of the Company
(whether by way of merger, purchase of capital stock, purchase of assets or
otherwise) or any material portion of its or their capital stock or assets or
(d) make or authorize any statement, recommendation or solicitation in support
of any possible acquisition of the Company (whether by way of merger, purchase
of capital stock, purchase of assets or otherwise) or any material portion of
its capital stock or assets by any person, other than by Parent. In addition to
the foregoing, if the Company or Selling Shareholder receives prior to the
Effective Time or the termination of this Agreement any offer or proposal
relating to any of the above, the Company and Selling Shareholder will promptly
notify Parent thereof, including information as to the identity of the offeror
or the party making any such offer or proposal and the specific terms of such
offer or proposal, as the case may be, and such other information related
thereto as Parent may reasonably request.
4.3. STRATEGIC AGREEMENTS.
The Company agrees that it will not enter into any strategic alliance,
joint development or joint marketing agreement during the period from the date
of this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, unless it has first secured the written consent
of the Parent.
22
<PAGE> 26
5. ADDITIONAL AGREEMENTS
5.1. INVESTMENT INTENT
The Selling Shareholder and Parent will execute an investment agreement
in substantially the form attached as Exhibit 5.1.
5.2. ACCESS TO INFORMATION.
Subject to any applicable contractual confidentiality obligations (which
the Company will use its reasonable best efforts to cause to be waived) each
party will afford the other and its accountants, counsel and other
representatives, reasonable access during normal business hours during the
period prior to the Effective Time to (a) all of its properties, books,
contracts, agreements and records, and (b) all other information concerning the
business, properties and personnel (subject to restrictions imposed by
applicable law) of it as the other may reasonably request. No information or
knowledge obtained in any investigation pursuant to this Section 5.2 will affect
or be deemed to modify any representation or warranty contained herein or the
conditions to the obligations of the parties to consummate the Merger.
5.3. CONFIDENTIALITY.
Except as and to the extent required by law, a party (the "Receiving
Party") will not disclose or use, and will direct its representatives not to
disclose or use to the detriment of the other party (the "Disclosing Party"),
any Confidential Information (as defined below) with respect to the Disclosing
Party furnished, or to be furnished, by the Disclosing Party, or their
respective representatives to the Receiving Party or its representatives at any
time or in any manner other than in connection with its evaluation of the
transaction proposed in this Agreement. For purposes of this Section,
"Confidential Information" means any information about the Disclosing Party
stamped "confidential" or identified in writing as such to the Receiving Party
promptly following its disclosure, unless (i) such information is already known
to the Receiving Party or its representatives or to others not bound by a duty
of confidentiality or such information becomes publicly available through no
fault of the Receiving Party or its representatives, (ii) the use of such
information is necessary in making any filing or obtaining any consent or
approval required for the consummation of the transaction contemplated
hereunder, or (iii) the furnishing or use of such information is required by or
necessary or appropriate in connection with legal proceedings. Upon the written
request of the Disclosing Party, the Receiving Party will promptly return to the
Disclosing Party or destroy any Confidential Information in its possession and
certify in writing to the Disclosing Party that it has done so.
5.4. EXPENSES.
Whether or not the Merger is consummated, all fees and expenses incurred
in connection with the Merger including, without limitation, all legal,
accounting, financial advisory, consulting and all other fees and expenses of
third parties ("THIRD PARTY EXPENSES") incurred by a party in connection with
the negotiation and effectuation of the terms and conditions of this Agreement
and the transactions contemplated hereby, will be the obligation of the
respective party incurring such fees and expenses; provided, however that if the
Merger is consummated, Selling Shareholder will pay any and all THIRD PARTY
EXPENSES payable to Pircher Nichols & Meeks in excess of $40,000.
5.5. PUBLIC DISCLOSURE.
Unless otherwise required by law (including, without limitation,
securities laws) or, as to Parent, by the rules and regulations of the National
Association of Securities Dealers, Inc., prior to the Effective Time, no
disclosure (whether or not in response to an inquiry) of the subject matter of
this Agreement will be made by any party hereto unless approved by Parent and
the Company prior to release, provided that such approval will not be
unreasonably withheld.
23
<PAGE> 27
5.6. CONSENTS.
The Company will use its reasonable efforts to obtain the consents,
waivers and approvals under any of the Contracts as may be required in
connection with the Merger (all of such consents, waivers and approvals are set
forth in the Company Disclosure Schedule) so as to preserve all rights of, and
benefits to the Company thereunder.
5.7. FIRPTA COMPLIANCE.
On the Closing Date, the Company will deliver to Parent a properly
executed statement in a form reasonably acceptable to Parent for purposes of
satisfying Parent's obligations under Treasury Regulation Section
1.1445-2(c)(3).
5.8. REASONABLE EFFORTS.
Subject to the terms and conditions provided in this Agreement, each of
the parties hereto will use its reasonable efforts to take promptly, or cause to
be taken, all actions, and to do promptly, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated hereby to obtain all
necessary waivers, consents and approvals and to effect all necessary
registrations and filings and to remove any injunctions or other impediments or
delays, legal or otherwise, in order to consummate and make effective the
transactions contemplated by this Agreement for the purpose of securing to the
parties hereto the benefits contemplated by this Agreement; provided that Parent
will not be required to agree to any divestiture by Parent or the Company or any
of Parent's subsidiaries or affiliates of shares of capital stock or of any
business, assets or property of Parent or its subsidiaries or affiliates or the
Company or its affiliates, or the imposition of any material limitation on the
ability of any of them to conduct their businesses or to own or exercise control
of such assets, properties and stock.
5.9. NOTIFICATION OF CERTAIN MATTERS.
The Company and Selling Shareholder will give prompt notice to Parent,
and Parent will give prompt notice to the Company and Selling Shareholder, of
(i) the occurrence or non-occurrence of which is likely to cause any
representation or warranty of the Company or Selling Shareholder or Parent or
Merger Sub, respectively, contained in this Agreement to be untrue or inaccurate
in any material respect at or prior to the Effective Time except as contemplated
by this Agreement (including the Company Disclosure Schedule) and (ii) any
failure of the Company or Parent, as the case may be, to comply with or satisfy
in any material respect any covenant, condition or agreement to be complied with
or satisfied by it hereunder; provided, however, that the delivery of any notice
pursuant to this Section 5.9 and any due diligence investigation made on behalf
of the other party hereto will not limit or otherwise affect any remedies
available to the party.
5.10 POOLING ACCOUNTING.
Parent and the Company will each use its reasonable efforts to cause the
business combination to be effected by the Merger to be accounted for as a
pooling of interests. The Company and Selling Shareholder will not take any
action that would adversely affect the ability of Parent to account for the
business combination to be effected by the Merger as a pooling of interests.
Neither the Company nor Selling Shareholder will take any action, including the
acceleration of vesting of any options, warrants, restricted stock or other
rights to acquire shares of the capital stock of the Company, which reasonably
would be expected to (i) interfere with Parent's ability to account for the
Merger as a pooling of interests or (ii) jeopardize the tax-free nature of the
reorganization hereunder. Parent acknowledges and agrees it will not claim that
the Permitted Dividend falls within the prohibitions of this Section 5.10.
5.11 ADDITIONAL DOCUMENTS AND FURTHER ASSURANCES.
24
<PAGE> 28
Each party hereto, at the request of the other party hereto, will
execute and deliver such other instruments and do and perform such other acts
and things as may be necessary or desirable for effecting completely the
consummation of this Agreement and the transactions contemplated hereby.
6. CONDITIONS TO THE MERGER
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER.
The respective obligations of each party to this Agreement to effect the
Merger will be subject to the satisfaction at or prior to the Closing of the
following conditions:
6.1.1 NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY
No temporary restraining order, preliminary or permanent injunction or
other order issued by any court of competent jurisdiction or other legal or
regulatory restraint or prohibition preventing the consummation of the Merger
will be in effect.
6.1.2 POOLING OPINION OF ACCOUNTANTS.
Parent will have received a letter from BDO Seidman, LLP reaffirming its
written concurrence, delivered concurrently with the execution of this
Agreement, with Parent management's conclusions as to the appropriateness of
pooling of interests accounting for the Merger under Accounting Principles Board
Opinion No. 16, if consummated in accordance with this Agreement.
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY AND SELLING
SHAREHOLDER.
The obligations of the Company and Selling Shareholder to consummate the
Merger and the transactions contemplated by this Agreement will be subject to
the satisfaction at or prior to the Closing of each of the following conditions,
any of which may be waived, in writing, exclusively by the Company and Selling
Shareholder:
6.2.1 REPRESENTATIONS AND WARRANTIES.
The representations and warranties of Parent and Merger Sub contained in
this Agreement will be true and correct in all material respects on and as of
the Effective Time, except for changes contemplated by this Agreement (including
the Parent Disclosure Schedule) and except for those representations and
warranties which address matters only as of a particular date (which will remain
true and correct as of such date), with the same force and effect as if made on
and as of the Effective Time, except, in all such cases, for such breaches,
inaccuracies or omissions of such representations and warranties which have
neither had nor reasonably would be expected to have a Material Adverse Effect
on the Parent; and Company will have received a certificate to such effect
signed on behalf of Parent by a duly authorized officer of the Parent in
substantially the form attached as Exhibit 6.2.1.
6.2.2 AGREEMENTS AND COVENANTS.
Parent and Merger Sub will have performed or complied (which performance
or compliance will be subject to Parent's or Merger Sub's ability to cure as
provided in Section 8.1.5 below) in all material respects with all agreements
and covenants required by this Agreement to be performed or complied with by
them on or prior to the Effective Time, and the Company will have received a
certificate to such effect signed by a duly authorized officer of Parent in
substantially the form attached as Exhibit 6.2.1.
6.2.3 LEGAL OPINION.
The Company and the Selling Shareholder will have received a legal
opinion from Garvey, Schubert & Barer, counsel to Parent, in substantially the
form attached hereto as Exhibit 6.2.3.
25
<PAGE> 29
6.2.4. MATERIAL ADVERSE CHANGE
Since the date hereof, there will not have occurred any material adverse
change in the business, assets (including intangible assets), financial
condition or results of operations of Parent.
6.2.5. THIRD PARTY CONSENTS.
The Company will have been furnished with evidence satisfactory to it
that Parent and Merger Sub have obtained all consents, approvals and waivers
required for the consummation by Parent and Merger Sub of the transactions
contemplated by this Agreement.
6.3. ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PARENT AND MERGER
SUB.
The obligations of Parent and Merger Sub to consummate the Merger and
the transactions contemplated by this Agreement will be subject to the
satisfaction at or prior to the Closing of each of the following conditions, any
of which may be waived, in writing, exclusively by Parent:
6.3.1. REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company and Selling
Shareholder contained in this Agreement will be true and correct in all material
respects on and as of the Effective Time, except for changes contemplated by
this Agreement (including the Company Disclosure Schedule) and except for those
representations and warranties which address matters only as of a particular
date (which will remain true and correct as of such date), with the same force
and effect as if made on and as of the Effective Time, except, in all such
cases, for such breaches, inaccuracies or omissions of such representations and
warranties which have neither had nor reasonably would be expected to have a
Material Adverse Effect on the Company or Parent; and Parent and Merger Sub will
have received a certificate to such effect signed on behalf of the Company by a
duly authorized officer of the Company in substantially the form attached as
Exhibit 6.3.1.
6.3.2. AGREEMENTS AND COVENANTS.
The Company will have performed or complied (which performance or
compliance will be subject to the Company's ability to cure as provided in
Section 8.1.4 below) in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by it on or prior to
the Effective Time, and Parent and Merger Sub will have received a certificate
to such effect signed by a duly authorized officer of the Company in
substantially the form attached as Exhibit 6.3.1.
6.3.3. CONSENTS.
Parent will have been furnished with evidence satisfactory to it that
the Company has obtained all the consents, approvals and waivers required for
the consummation by the Company of the transactions contemplated by this
Agreement, including but not limited to, consents in the form satisfactory to
Parent as enumerated in Exhibit 6.3.3.
6.3.4. LEGAL OPINION.
Parent will have received a legal opinion from Pircher Nichols & Meeks,
counsel to the Selling Shareholder, in substantially the form attached hereto as
Exhibit 6.3.4.
6.3.5. MATERIAL ADVERSE CHANGE.
26
<PAGE> 30
There will not have occurred any material adverse change in the
business, assets (including intangible assets), financial condition or results
of operations of the Company since June 30, 1998.
6.3.6. EMPLOYMENT AND NONCOMPETITION AGREEMENT.
Eugene M. Stabile will have executed and delivered to Company and Parent
an Employment and Noncompetition Agreement in substantially the form of Exhibit
6.3.6 and such agreement will be in full force and effect.
7. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNITY; AND ESCROW
7.1. SURVIVAL AND INDEMNITY.
7.1.1. All of the Selling Shareholder's, the Company's, Parent's
and Merger Sub's representations and warranties in this
Agreement or in any instrument delivered pursuant to this
Agreement (each as modified by the Company Disclosure
Schedule or the Parent Disclosure Schedule, as the case
may be) will survive the Merger and continue until 5:00
p.m., Pacific time, one (1) year following the Effective
Time (the "EXPIRATION DATE").
7.1.2. Subject to the terms and conditions of this Section 7,
7.1.2.1. The Selling Shareholder hereby agrees to
indemnify and hold harmless Parent and its
officers, directors and affiliates (including the
Surviving Corporation) (collectively, the "PARENT
PARTIES") from and against any claims losses,
liabilities, damages, deficiencies, costs and
expenses, including reasonable attorney fees and
expenses, and expenses of investigation and
defense (hereinafter individually a "LOSS" and
collectively "LOSSES") which any Parent Party may
suffer, sustain or become subject to by reason of
or resulting from (i) any breach by the Selling
Shareholder or the Company of any covenant or
agreement or (ii) any inaccuracy in any
representation or warranty of the Company or the
Selling Shareholder contained in this Agreement
or any other instrument delivered pursuant to
this Agreement (each as modified by the Company
Disclosure Schedule).
7.1.2.2. Parent hereby agrees to indemnify and hold
harmless the Selling Shareholder from and against
all Losses which the Selling Shareholder may
suffer, sustain, or become subject to by reason
of or resulting from (I) any breach by the Parent
or Merger Sub of any covenant or agreement or
(ii) any inaccuracy in an representation or
warranty of Merger Sub or Parent contained in
this Agreement or any other instrument delivered
pursuant to this Agreement (each as modified by
the Parent Disclosure Schedule).
7.1.2.3. All of the foregoing are hereinafter collectively
referred to as "CLAIMS" the party seeking
indemnification pursuant to this Section 7 is
hereinafter referred to as an "Indemnified
Party", and the person from whom indemnification
is sought is hereinafter referred to as an
"Indemnifying Party".
7.1.3. The indemnification provided for in Section 7.1.2 hereof
shall be subject to the following limitations.
7.1.3.1. Neither the Selling Shareholder's nor the
Parent's total liability for indemnification
under this Section 7 shall exceed $1,800,000;
provided, however, that obligations for
indemnifiable amounts arising out of fraud or
willful misstatements or omissions shall have no
limit nor shall claims for breach of warranty
under Sections 2.2, 2.4, 3.2, or
27
<PAGE> 31
3.3.2 have any limit.
7.1.3.2. The Selling Shareholder shall not be liable for
indemnification of any Parent Party under Section
7.1.2.1 unless the aggregate amount of all Losses
incurred by all Parent Parties and otherwise
subject to Section 7.1.2.1 exceeds $100,000.
7.1.3.3. Parent shall not be liable for indemnification of
the Selling Shareholder under Section 7.1.2.2
unless the aggregate amount of all Losses
incurred by the Selling Shareholder and otherwise
subject to Section 7.1.2.2 exceeds $100,000.
7.1.3.4. Neither the Selling Shareholder nor Parent Party
shall be liable for indemnification for Losses
under this Section 7 unless written notice of
such Losses is received by it prior to or on the
Expiration Date.
7.1.3.5. The parties hereby agree that the Selling
Shareholder's right to indemnification provided
for in Section 7.1.2 hereof shall be the sole
remedy against any Parent Party in the event of
any inaccuracy in any representation or warranty
by a Parent Party under this Agreement or any
other instrument delivered pursuant to this
Agreement each as modified by the Parent
Disclosure Schedule and that the Parent Party's
right to indemnification provided for in Section
7.1.2 hereof shall be the sole remedy against the
Selling Shareholder in the event of any
inaccuracy in any representation or warranty of
Selling Shareholder or Company under this
Agreement or any other instrument delivered
pursuant to this Agreement each as modified by
the Company Disclosure Schedule.
7.1.4. The obligations and liabilities of the parties hereunder
with respect to Claims resulting from the assertion of
liability by third parties shall be subject to the
following terms and conditions:
7.1.4.1. The Indemnified Party shall give written notice
to the Indemnifying Party of any such Claim
within 30 days after the Indemnified Party
receives notice thereof, which written notice
shall state the nature and basis of such Claims
and, if determinable, the amount thereof,
provided the failure to so notify the
Indemnifying Part shall not prejudice the rights
of the Indemnified Party under this Agreement
unless the Indemnifying Party shall be prejudiced
and then only to the extent of such prejudice.
The Indemnified Party, at its election, shall be
entitled to assume the defense of Claims;
provided, that no settlement or compromise may be
effected without the Indemnifying Party's consent
(which will not be unreasonably withheld).
7.1.4.2. In the event that the Indemnifying Party, within
a reasonable time after notice of any such Claim,
fails to defend the same, the Indemnified Party
shall (upon further notice to the Indemnifying
Party) have the right to undertake the defense,
compromise or settlement of such Claim on behalf
of and for the account and risk of the
Indemnifying Party, subject to the right of the
Indemnifying Party to assume the defense thereof
at any time prior to settlement, compromise or
final determination thereof.
7.1.4.3. Anything in this Section 7 to the contrary
notwithstanding (i) if there is a reasonable
probability that a Claim may materially and
adversely affect the Indemnifying Party other
than as a result of money damages and other money
payments, the Indemnifying Party shall have the
right, its own cost and expense, to defend,
compromise or settle such Claim and (ii) the
Indemnifying Party shall not, without the
Indemnified Party's written consent, settle or
compromise any Claim or consent to
28
<PAGE> 32
entry of any judgment which does not include as
an unconditional term thereof the giving by the
claimant or plaintiff to the Indemnified Party a
release from all liability in respect of such
Claim.
7.2. ESCROW ARRANGEMENTS.
7.2.1. ESCROW FUND.
At the Effective Time the Selling Shareholder will be deemed to have
received and deposited the Escrow Amount (plus any additional shares as may be
issued upon any stock split, stock dividend or recapitalization effected by
Parent after the Effective Time). As soon as practicable after the Effective
Time, the Escrow Amount, without any act of any stockholder, will be deposited
with ChaseMellon Shareholder Services, (or other institution acceptable to
Parent and the Selling Shareholder as Escrow Agent (the "ESCROW AGENT"), such
deposit to constitute an escrow fund the "ESCROW FUND") to be governed by the
terms set forth herein and at Parent's cost and expense. The Escrow Fund will be
available to compensate Parent Parties for any Losses for which any Parent Party
is entitled to indemnification by the Selling Shareholder pursuant to Section
7.1.2. Nothing herein will limit the liability of the Company or Selling
Shareholder for any breach of any representation, warranty or covenant if the
Merger does not occur.
7.2.2. ESCROW PERIOD; DISTRIBUTION UPON TERMINATION OF ESCROW
PERIOD.
Subject to the following requirements, the Escrow Fund will be in
existence immediately following the Effective Time and will terminate at 5:00
p.m., Pacific time, on the one-year anniversary of the date on which the
Effective Time occurs (the "ESCROW PERIOD") at which time the Escrow Agent will
deliver the Escrow Fund to Shareholder; provided that the Escrow Period will not
terminate with respect to such amount (or some portion thereof), that together
with the aggregate amount remaining in the Escrow Fund is necessary in the
reasonable judgment of Parent, subject to the objection of the Selling
Shareholder pursuant to Section 7.2.5, to satisfy any unsatisfied claims
concerning facts and circumstances existing prior to the termination of such
Escrow Period specified in any Officer's Certificate delivered to the Escrow
Agent prior to termination of such Escrow Period. As soon as all such claims
have been resolved, the Escrow Agent will deliver to Selling Shareholder the
remaining portion of the Escrow Fund not required to satisfy such claims.
7.2.3. PROTECTION OF ESCROW FUND.
7.2.3.1. The Escrow Agent will hold and safeguard the
Escrow Fund during the Escrow Period, will treat
such fund as a trust fund in accordance with the
terms of this Agreement and not as the property
of Parent and will hold and dispose of the Escrow
Fund only in accordance with the terms hereof.
7.2.3.2. Any shares of Parent Common Stock or other equity
securities issued or distributed by Parent
(including shares issued upon a stock split)
("NEW SHARES") in respect of Parent Common Stock
in the Escrow Fund which have not been released
from the Escrow Fund will be added to the Escrow
Fund and become a part thereof. New Shares issued
in respect of shares of Parent Common Stock which
have been released from the Escrow Fund will not
be added to the Escrow Fund but will be
distributed to the Selling Shareholder. Cash
dividends on Parent Common Stock will not be
added to the Escrow Fund but will be distributed
to the Selling Shareholder.
7.2.3.3. Selling Shareholder will have voting rights with
respect to the shares of Parent Common Stock
deposited in the Escrow Fund (and on any voting
securities added to the Escrow Fund in respect of
such shares of Parent Common Stock).
29
<PAGE> 33
7.2.4. CLAIMS UPON ESCROW FUND.
7.2.4.1. Upon receipt by the Escrow Agent at any time on
or before the last day of the Escrow Period of a
certificate signed by any officer of Parent (an
"OFFICER'S CERTIFICATE"): (A) stating that Parent
has paid or properly accrued or reasonably
anticipates that it will have to pay or accrue
Losses, and (B) specifying in reasonable detail
the individual items of Losses included in the
amount so stated, the date each such item was
paid or properly accrued, or the basis for such
anticipated liability, and the nature of the
misrepresentation, breach of warranty or covenant
to which such item is related, the Escrow Agent
will, subject to the provisions of Section 7.2.5
hereof, deliver to Parent out of the Escrow Fund,
as promptly as practicable, shares of Parent
Common Stock held in the Escrow Fund in an amount
equal to such Losses.
7.2.4.2. For the purposes of determining the number of
shares of Parent Common Stock to be delivered to
Parent out of the Escrow Fund pursuant to Section
7.2.4.1 hereof, the shares of Parent Common Stock
will be valued at the average of the closing
prices of Parent Common Stock as reported for
consolidated trading on the NASDAQ National
Market System, as reported in THE WALL STREET
JOURNAL, over the twenty- (20-) trading days
ending on the date that is two (2) trading days
prior to the date Escrow Agent delivers such
shares.
7.2.5. OBJECTIONS TO CLAIMS.
At the time of delivery of any Officer's Certificate to the Escrow
Agent, a duplicate copy of such certificate will be delivered to the Selling
Shareholder and for a period of thirty (30) days after such delivery, the Escrow
Agent will make no delivery to Parent of any Escrow Amounts pursuant to Section
7.2.4 hereof unless the Escrow Agent will have received written authorization
from Selling Shareholder to make such delivery. After the expiration of such
thirty (30) day period, the Escrow Agent will make delivery of shares of Parent
Common Stock from the Escrow Fund in accordance with Section 6.2.4 hereof,
provided that no such payment or delivery may be made if the Selling Shareholder
will have objected in a written statement to the claim made in the Officer's
Certificate, and such statement shall have been delivered to the Escrow Agent
and Parent prior to the expiration of such thirty (30) day period. In that
event, Escrow Agent will reserve the number of shares equal in value to the
amount of the open claim which will not be transferred to Parent or released to
Selling Shareholder absent (1) mutual agreement of Parent and Selling
Shareholder or (2) a court order pertaining to the open claim.
7.2.6. THIRD-PARTY CLAIMS.
In the event Parent becomes aware of a third-party claim which Parent
believes may result in a demand against the Escrow Fund, Parent will notify the
Selling Shareholder of such claim, and the Selling Shareholder will be entitled,
at his expense, to participate in any defense of such claim. Parent will have
the right in its sole discretion to settle any such claim; provided, however,
that except with the consent of the Selling Shareholder no settlement of any
such claim with third-party claimants will alone be determinative of the amount
of any claim against the Escrow Fund. In the event that the Selling Shareholder
has consented to any such settlement and acknowledged that the claim is a valid
claim against the Escrow Fund, the Selling Shareholder will have no power or
authority to object under any provision of this Section 6 to the amount of any
claim by Parent against the Escrow Fund agreed to as part of such settlement.
7.2.7. ESCROW AGENT'S DUTIES.
7.2.7.1. The Escrow Agent will be obligated only for the
performance of such duties as are
30
<PAGE> 34
specifically set forth herein, and as set forth
in any additional written escrow instructions
which the Escrow Agent may receive after the date
of this Agreement which are signed by an officer
of Parent and the Selling Shareholder, and may
rely and will be protected in relying or
refraining from acting on any instrument
reasonably believed to be genuine and to have
been signed or presented by the proper party or
parties. The Escrow Agent will not be liable for
any act done or omitted hereunder as Escrow Agent
while acting in good faith and in the exercise of
reasonable judgment, and any act done or omitted
pursuant to the advice of counsel will be
conclusive evidence of such good faith.
7.2.7.2. The Escrow Agent is hereby expressly authorized
to disregard any and all warnings given by any of
the parties hereto or by any other person,
excepting only orders or process of courts of
law, and is hereby expressly authorized to comply
with and obey orders, judgments or decrees of any
court. In case the Escrow Agent obeys or complies
with any such order, judgment or decree of any
court, the Escrow Agent will not be liable to any
of the parties hereto or to any other person by
reason of such compliance, notwithstanding any
such order, judgment or decree being subsequently
reversed, modified, annulled, set aside, vacated
or found to have been entered without
jurisdiction.
7.2.7.3. The Escrow Agent will not be liable in any
respect on account of the identity, authority or
rights of the parties executing or delivering or
purporting to execute or deliver this Agreement
or any documents or papers deposited or called
for hereunder.
7.2.7.4. The Escrow Agent will not be liable for the
expiration of any rights under any statute of
limitations with respect to this Agreement or any
documents deposited with the Escrow Agent.
7.2.7.5. In performing any duties under the Agreement, the
Escrow Agent will not be liable to any Party for
damages, losses, or expenses, except for gross
negligence or willful misconduct on the part of
the Escrow Agent. The Escrow Agent will not incur
any such liability for (A) any act or failure to
act made or omitted in good faith, or (B) any
action taken or omitted in reliance upon any
instrument, including any written statement or
affidavit provided for in this Agreement that the
Escrow Agent in good faith believed to be
genuine, nor will the Escrow Agent be liable or
responsible for forgeries, fraud, impersonations,
or determining the scope of any representative's
authority. In addition, the Escrow Agent may
consult with legal counsel in connection with
Escrow Agent's duties under this Agreement and
will be fully protected in any act taken,
suffered, or permitted by him/her in good faith
in accordance with the advice of counsel. The
Escrow Agent is not responsible for determining
or verifying the authority of any person acting
or purporting to act on behalf of any party to
this Agreement.
7.2.7.6. If any controversy arises between the parties to
this Agreement, or with any other party,
concerning the subject matter of this Agreement,
its terms or conditions, the Escrow Agent will
not be required to determine the controversy or
to take any action regarding it. The Escrow Agent
may hold all documents and shares of Parent
Common Stock and may wait for settlement of any
such controversy by final appropriate legal
proceedings or other means as, in the Escrow
Agent's discretion, the Escrow Agent may require,
despite what may be set forth elsewhere in this
Agreement. In such event, the Escrow Agent will
not be liable for damage.
31
<PAGE> 35
Furthermore, the Escrow Agent may at its option,
file an action of interpleader requiring the
parties to answer and litigate any claims and
rights among themselves. The Escrow Agent is
authorized to deposit with the clerk of the court
all documents and shares of Parent Common Stock
held in escrow, except all cost, expenses,
charges and reasonable attorney fees incurred by
the Escrow Agent due to the interpleader action
(the parties jointly and severally agree to pay
such fees incurred by the Escrow Agent). Upon
initiating such action, the Escrow Agent will be
fully released and discharged of and from all
obligations and liability imposed by the terms of
this Agreement.
7.2.7.7. The parties and their respective successors and
assigns agree jointly and severally to indemnify
and hold Escrow Agent harmless against any and
all losses, claims, damages, liabilities, and
expenses, including reasonable costs of
investigation, counsel fees, and disbursements
that may be imposed on Escrow Agent or incurred
by Escrow Agent in connection with the
performance of his/her duties under this
Agreement, including but not limited to any
litigation arising from this Agreement or
involving its subject matter.
7.2.7.8. The Escrow Agent may resign at any time upon
giving at least thirty (30) days written notice
to the parties; provided, however, that no such
resignation will become effective until the
appointment, and acceptance by, of a successor
escrow agent which will be accomplished as
follows: the parties will use their best efforts
to mutually agree on a successor escrow agent
within thirty (30) days after receiving such
notice. If the parties fail to agree upon a
successor escrow agent within such time, the
Escrow Agent will have the right to appoint a
successor escrow agent authorized to do business
in the State of Washington. The successor escrow
agent will execute and deliver an instrument
accepting such appointment and it will, without
further acts, be vested with all the estates,
properties, rights, powers, and duties of the
predecessor escrow agent as if originally named
as escrow agent, and the predecessor Escrow Agent
will be discharged from any further duties and
liability under this Agreement.
7.2.7.9. All fees of the Escrow Agent for performance of
its duties hereunder will be paid by Parent. It
is understood that the fees and usual charges
agreed upon for services of the Escrow Agent will
be considered compensation for ordinary services
as contemplated by this Agreement. In the event
that the conditions of this Agreement are not
promptly fulfilled, or if the Escrow Agent
renders any service not provided for in this
Agreement, or if the parties request a
substantial modification of its terms, or if any
controversy arises, or if the Escrow Agent is
made a party to, or intervenes in, any litigation
pertaining to this escrow or its subject matter,
the Escrow Agent will be reasonably compensated
for such extraordinary services and reimbursed
for all costs, attorney's fees, and expenses
occasioned by such default, delay, controversy or
litigation. Parent promises to pay these sums
upon demand.
8. TERMINATION, AMENDMENT AND WAIVER
8.1. TERMINATION.
This Agreement may be terminated and the Merger abandoned at any time
before or after approval of this Agreement or the Merger by the shareholders
and/or board of directors of Parent, the Company and Merger Sub and prior to the
Effective Time:
32
<PAGE> 36
8.1.1. By written mutual consent of the Company and Parent;
8.1.2. By Parent or the Company if: (i) the Effective Time has
not occurred by November 30, 1997, or such later date as
the Parties may agree upon (provided that the right to
terminate this Agreement under this clause 7.1.2(i) will
not be available to any party whose willful failure to
fulfill any obligation hereunder has been the cause of, or
resulted in, the failure of the Effective Time to occur on
or before such date); (ii) there will be a final,
nonappealable order of a federal or state court in effect
preventing consummation of the Merger; or (iii) there will
be any statute, rule, regulation or order enacted,
promulgated or issued or deemed applicable to the Merger
by any Governmental Entity that would make consummation of
the Merger illegal.
8.1.3. By Parent if there will be any action taken, or any
statute, rule, regulation or order enacted, promulgated or
issued or deemed applicable to the Merger, by any
Governmental Entity, which would: (i) prohibit Parent's or
the Company's ownership or operation of any portion of the
business of the Company or (ii) compel Parent or the
Company to dispose of or hold separate, as a result of the
Merger, any portion of the business or assets of the
Company or Parent if in either case, the unavailability of
such assets or business would have a Material Adverse
Effect on Parent or would reasonably be expected to have a
Material Adverse Effect on Parent's ability to realize the
benefits expected from the Merger;
8.1.4. By Parent if it is not in material breach of its
obligations under this Agreement and there has been a
breach of any representation, warranty, covenant or
agreement contained in this Agreement on the part of the
Company and as a result of such breach the conditions set
forth in Section 6.3.1 or Section 6.3.2, as the case may
be, would not then be satisfied; provided, however, that
if such breach is curable by the Company within thirty
(30) days through the exercise of its reasonable best
efforts, then the Parent will so notify the Company in
writing and the Company will have thirty (30) days to cure
such breach (but no cure period will be required for a
breach which by its nature cannot be cured); and
8.1.5. By the Company if it is not in material breach of its
obligations under this Agreement and there has been a
breach of any representation, warranty, covenant or
agreement contained in this Agreement on the part of
Parent or Merger Sub and as a result of such breach the
conditions set forth in Section 6.2.1 or Section 6.2.2, as
the case may be, would not then be satisfied; provided,
however, that if such breach is curable by Parent or
Merger Sub within thirty (30) days through the exercise of
its reasonable best efforts, then the Company will so
notify the Parent in writing and Parent or Merger Sub will
have thirty (30) days to cure such breach (but no cure
period will be required for a breach which by its nature
cannot be cured).
Where action is taken to terminate this Agreement pursuant to this
Section 8.1, it will be sufficient for such action to be authorized by the Board
of Directors (as applicable) of the party taking such action.
8.2. EFFECT OF TERMINATION.
Each party's right of termination under Section 8.1 is in addition to
any other rights it may have under this Agreement or otherwise, and the exercise
of a right of termination will not be an election of remedies. If this Agreement
is terminated pursuant to Section 8.1, all further obligations of the parties
under this Agreement will terminate except the obligations in Sections 5.3 and
5.4 will survive; provided, however, if this Agreement is terminated by a party
because of breach of this Agreement by the other party or because one or more
conditions to the terminating party's obligations under this Agreement are not
satisfied as a result of the other party's failure to comply with its
obligations under this Agreement, the terminating party's right to pursue all
legal remedies will survive such termination unimpaired.
33
<PAGE> 37
8.3. AMENDMENT.
This Agreement may be amended by the parties hereto by action taken or
authorized by their respective Boards of Directors, at any time before or after
approval of the matters presented in connection with the Merger by the
shareholders of Parent, Merger Sub, or the Company but after any such approval,
no amendment may be made which by law requires further approval by such
shareholders without such further approval. This Agreement may not be amended
except by execution of an instrument in writing signed on behalf of each of the
parties hereto.
8.4. EXTENSION; WAIVER.
At any time prior to the Effective Time, Parent and Merger Sub, on the
one hand, and the Company, on the other, may, to the extent legally allowed, (i)
extend the time for the performance of any of the obligations of the other party
hereto, (ii) waive any inaccuracies in the representations and warranties made
to such party contained herein or in any document delivered pursuant hereto, and
(iii) waive compliance with any of the agreements or conditions for the benefit
of such party contained herein. Any agreement on the part of a party hereto to
any such extension or waiver will be valid only if set forth in an instrument in
writing signed on behalf of such party.
9. GENERAL PROVISIONS
9.1. NOTICES.
All notices and other communications hereunder will be in writing and
will be deemed given if delivered personally or by commercial delivery service,
or mailed by registered or certified mail (return receipt requested) or sent via
facsimile (with acknowledgment of complete transmission) to the parties at the
following addresses (or at such other address for a party as will be specified
by like notice):
9.1.1. If to Parent or Merger Sub, to:
Data Dimensions, Inc.
One Bellevue Center
Suite 2100
411 108th Avenue NE
Bellevue, Washington 98004
Attention: Legal Department
Telephone: 425-688-1000
Facsimile: 425-688-1099
Email: [email protected]
With a copy to:
Garvey, Schubert & Barer
1191 Second Avenue, #1800
Seattle, Washington 98101-2939
Attention: Bruce A. Robertson
Telephone: 206-464-3939
Facsimile: 206-464-0125
9.1.2. If to the Company, to:
Pyramid Information Services, Inc.
34
<PAGE> 38
6171 West Century Blvd., Suite 300
Los Angeles, CA 90045
Attention: Eugene M. Stabile
Telephone: 310-348-9292
Facsimile: 310-348-9393
Email: [email protected]
With a copy to:
Pircher, Nichols & Meeks
1999 Avenue of the Stars
Los Angeles, CA 90067
Attention: Larry M. Meeks, Esq.
Telephone: 310-201-8903
Facsimile: 310-201-8922
Email: [email protected]
9.1.3. If to the Selling Shareholder, to:
Eugene M. Stabile
30051 Andromeda Lane
Malibu, CA 90265
Telephone: 310-457-7742
Facsimile: 310-457-3012
Email: [email protected]
9.1.4. If to the Escrow Agent:
ChaseMellon Shareholder Services, L.L.C.
520 Pike Street, Suite 1220
Seattle, WA 98101
Attention: Pauline Skudler
Telephone: 206-674-3032
Facsimile: 206-674-3059
Email: None
9.2. INTERPRETATION.
The words "include," "includes" and "including" when used herein will be
deemed in each case to be followed by the words "without limitation." The word
"agreement" when used herein will be deemed in each case to mean any contract,
commitment or other agreement, whether oral or written, that is legally binding.
The table of contents and headings contained in this Agreement are for reference
purposes only and will not affect in any way the meaning or interpretation of
this Agreement.
9.3. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, all of which
will be considered one and the same agreement and will become effective when one
or more counterparts have been signed by each of the parties and delivered to
the other party, it being understood that all parties need not sign the same
counterpart.
9.4. ENTIRE AGREEMENT; ASSIGNMENT.
35
<PAGE> 39
This Agreement, the Schedules and Exhibits hereto, and the documents and
instruments and other agreements among the parties hereto referenced herein: (a)
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior negotiations, agreements understandings
and representations, both written and oral, among the parties with respect to
the subject matter hereof; (b) are not intended to confer upon any other person
any rights or remedies hereunder; and (c) will not be assigned by operation of
law or otherwise except with the prior written consent of all parties hereto.
9.5. SEVERABILITY.
In the event that any provision of this Agreement or the application
thereof, becomes or is declared by a court of competent jurisdiction to be
illegal, void or unenforceable, the remainder of this Agreement will continue in
full force and effect and the application of such provision to other persons or
circumstances will be interpreted so as reasonably to effect the intent of the
parties hereto. The parties further agree to replace such void or unenforceable
provision of this Agreement with a valid and enforceable provision that will
achieve, to the extent possible, the economic, business and other purposes of
such void or unenforceable provision.
9.6. OTHER REMEDIES.
Except as otherwise provided herein, any and all remedies herein
expressly conferred upon a party will be deemed cumulative with and not
exclusive of any other remedy conferred hereby, or by law or equity upon such
party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
9.7. GOVERNING LAW.
Except as otherwise provided herein, this Agreement will be governed by
and construed in accordance with the laws of the State of Washington, regardless
of the laws that might otherwise govern under applicable principles of conflicts
of laws thereof.
9.8. RULES OF CONSTRUCTION.
The parties hereto agree that they have been represented by counsel
during the negotiation and execution of this Agreement and, therefore, waive the
application of any law, regulation, holding or rule of construction providing
that ambiguities in an agreement or other document will be construed against the
party drafting such agreement or document.
9.9. SPECIFIC PERFORMANCE.
The parties hereto agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties will be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
having jurisdiction, this being in addition to any other remedy to which they
are entitled at law or in equity.
[Remainder of Page Intentionally Omitted]
36
<PAGE> 40
IN WITNESS WHEREOF, Parent, Merger Sub, the Company, the Selling
Shareholder and the Escrow Agent (as to matters set forth in Section 7 only)
have caused this Agreement to be signed by their duly authorized respective
officers, all as of the date first written above.
PARENT: COMPANY:
/s/ LARRY W. MARTIN /s/ EUGENE M. STABILE
- -------------------------------- ----------------------------------
Signature Signature
Larry W. Martin Eugene M. Stabile
President and CEO President
SELLING SHAREHOLDER MERGER SUB
/s/ EUGENE M. STABILE /s/ LARRY W. MARTIN
- -------------------------------- ----------------------------------
Signature Signature
Eugene M. Stabile Larry W. Martin
President
ESCROW AGENT
/s/ PAULINE SKUDLER
- --------------------------------
Signature
Pauline Skudler
Assistant Vice President
The undersigned, the spouse of Eugene M. Stabile, hereby consents to the
execution and delivery by Eugene M. Stabile of the foregoing Agreement
/s/ KATHLYN MONTAGUE STABILE
- --------------------------------
Signature
Kathlyn Montague Stabile
37
<PAGE> 41
EXHIBIT LIST
Exhibit 1.2 Form of Merger Agreement, Officers' Certificates, and
Articles of Merger
Exhibit 2 Company Disclosure Schedule
Exhibit 3 Parent Disclosure Schedule
Exhibit 5.1 Form of Investment Agreement
Exhibit 6.2.1 Form of Closing Certificate of Parent
Exhibit 6.2.3 Form of Garvey, Schubert, & Barer Legal Opinion
Exhibit 6.3.1 Form of Closing Certificate of Company
Exhibit 6.3.3 Conditions to Closing
Exhibit 6.3.4 Form of Pircher Nichols & Meeks Legal Opinion
Exhibit 6.3.6 Form of Employment and Noncompetition Agreement
38
<PAGE> 1
[BDO Seidman, LLP - Letterhead]
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Data Dimensions, Inc.
Bellevue, Washington
We hereby consent to the incorporation by reference in the Data Dimensions,
Inc. Form S-8 of our report dated September 12, 1997, relating to the financial
statements of Pyramid Information Services, Inc. appearing in the Data
Dimensions, Inc. report on Form 8-K dated October 30,1997.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Seattle, Washington
November 5, 1997
